Several Wall Street investment institutions recently expressed their expectation that the demand for the first US Ethereum ETF, which is expected to debut soon, may be much lower than that of bitcoin spot ETF, which casts a shadow over the price prospects of the second-largest cryptocurrency by market cap. Global top asset management institutions such as BlackRock and Fidelity are ready to issue Ethereum ETFs. Analysts from JPMorgan predict that the demand for Ethereum ETFs may only be a small part of the previous strong demand for bitcoin spot ETF.

ETF issuers such as BlackRock and Fidelity Investment are seeking SEC approval for Ethereum ETFs and are eagerly waiting for the SEC's final official approval. According to JPMorgan analysts on Wall Street, the net inflow of Ethereum ETFs is expected to be far lower than the global fund of 15.3 billion US dollars that flowed into bitcoin ETFs this year.

The Bitcoin ETF, established only five months ago, benefited from a controversial concept of calling this market-size-leading token "digital gold," while Ethereum lacks this concept. Ethereum-related funds will not provide so-called "stake rewards" for blockchain maintenance, which can be used by directly holding the underlying tokens.

According to Caroline Bowler, CEO of BTC Markets Pty, "Ethereum does not have the same level of notoriety as bitcoin." She added that Bitcoin's market cap of $1.4 trillion is three times that of Ethereum. "I don't expect it to have the same impact."

Surprising turning point

The surprising turning point for investors who focus on Ethereum is that the U.S. Securities and Exchange Commission (SEC) unexpectedly turned to approve the preliminary approval of Ethereum spot ETFs last month. Before the court overturned the ruling in 2023, the commission only reluctantly allowed bitcoin spot ETFs. This change has greatly pushed up the trading price of Ethereum, but in the past year, Ethereum's 109% increase lags behind bitcoin's staggering 169% increase, including the historical high set by bitcoin in March.

Early in the morning of May 24th, Beijing time, the SEC unexpectedly approved the 19b-4 form applications for spot Ethereum ETFs from several ETF issuers, including BlackRock, Fidelity, and Grayscale. However, although these forms have been approved, ETF issuers still need to wait for the S-1 registration statement to take effect before they can start trading on the US stock market. The SEC has begun discussing S-1 form details with issuers. Although the exact time is unclear, analysts generally speculate that this process may take about a month.

JPMorgan's analyst team led by Nikolaos Panigirtzoglou predicts that the future Ethereum portfolio size will attract "moderate" net inflows of up to 1-3 billion US dollars for the remaining time this year. Bloomberg Intelligence senior ETF analyst Eric Balchunas also stated that these products may be difficult to obtain about 20% of the assets of the US bitcoin ETF, and the current total assets of the US bitcoin ETF are as high as 62.5 billion US dollars.

There is a great difference in bitcoin and Ethereum ETF assets in different markets

Vetle Lunde, senior research analyst at cryptocurrency leader K33 research, is optimistic. He predicts that net inflows will be as high as $4 billion in the first five months, and he also expects that the "huge supply absorption impact" will greatly boost the Ethereum price.

Meanwhile, fund management company VanEck, which is seeking to launch Ethereum ETF, sees the popularity of the Ethereum blockchain, which is the foundation of encrypted financial services and other applications.

VanEck's digital asset research director Matthew Sigel said: "Over time, we expect investors to conclude that the application scale and innovation potential of the Ethereum ecosystem may be much larger than the Bitcoin system."

Arbitrageurs may continue to exit, thereby severely affecting Ethereum.

On January 11th, after the trading of the first nine US Bitcoin ETFs, Bitcoin initially fell sharply. On the same day, Grayscale Bitcoin Trust - the largest investment portfolio of its kind established more than a decade ago - was converted from a closed-end structure to an ETF, just like the initial situation of Bitcoin ETFs. This may cause outflows of funds from Grayscale's fund because arbitrageurs profit from the discount between the unit price of the fund and its net asset value, which ends after the fund becomes an ETF asset.

However, eventually, the strong demand for the new ETF overwhelmed the outflow of funds from Grayscale's fund, and Bitcoin prices rose again. This time, Grayscale Investments plans to convert its $11 billion Ethereum product into an ETF category. Just like the initial situation of Bitcoin ETFs, arbitrageurs may leave the largest Ethereum-related fund. Cryptocurrency research firm Kaiko said that once the Ethereum ETF is approved and listed, the large-scale 'selling pressure' caused by the redemption of Grayscale's fund would be a reasonable price expectation for Ethereum, but the impact of potential capital outflows on the overall cryptocurrency market is not yet clear.

However, in the end, the strong demand for the new ETF outweighed the outflow of funds from Grayscale's fund and Bitcoin prices rose again.

This time, Grayscale Investments plans to convert its $11 billion Ethereum product into an ETF category. Similar to the initial situation of Bitcoin ETFs, arbitrageurs may leave the largest Ethereum-related fund.

Cryptocurrency research firm Kaiko said that once the Ethereum ETF is approved and listed, the large-scale 'selling pressure' caused by the redemption of Grayscale's fund would be a reasonable price expectation for Ethereum, but the impact of potential capital outflows on the overall cryptocurrency market is not yet clear.

On Thursday, Ethereum was trading at $3,847 in London. Although Bitcoin is still expected to set a new historical record, Ethereum is still far from its historical peak of $4,866 during the cryptocurrency super bull market period of the COVID-19 pandemic.

ByteTree Asset Management, including a team of chief investment officer Charlie Morris, wrote in a report:"Global investors have been lukewarm about Ethereum for a long time, and they have been able to obtain Ethereum through Europe and Canada for many years."

The approval of the Ethereum ETF may not be bullish for the ETH trend! It may trigger the risk of excessive token concentration.

Even after the Ethereum ETF is officially launched and listed, the ETF may be difficult to boost the price trend of the underlying asset of Ethereum. Standard & Poor's Global (S&P Global), a respected rating agency, has warned in a report that the market expectation of US Securities and Exchange Commission's approval of Ethereum spot ETF (Ether ETF) may exacerbate the problem of excessive concentration in the Ethereum ecosystem, which may even have a negative effect on the price trend of Ethereum(ETH) because the approval expectation or the actual approval will most likely reserve the Ethereum tokens pledged in the hands of a few providers.

Analysts Andrew O'Neill and Alexandre Birry from S&P Global said that the scale of such token ETFs "may become large enough to change the concentration of validators in the Ethereum network." In turn, this may expose the Ethereum network to operational risks, such as inactivity caused by single point of failure or malicious collusion.

The globally popular cryptocurrency exchange, Coinbase Global Inc., is already the second-largest validator (or provider of blocks that are verified and added to the blockchain) in the Ethereum network, controlling about 14% of the pledged Ethereum. S&P Global's analysts cited data from Dune Analytics and Rated, writing that top provider Lido controls as much as 31.7% of the pledged Ethereum tokens.

US investment institutions issuing Ethereum ETFs are more likely to choose large cryptocurrency institutions such as Coinbase as dedicated digital asset custodians and avoid decentralized protocol platforms such as Lido. Analysts wrote that if Coinbase occupies a considerable share of the pledged Ethereum tokens, it means that the concentration risk of Ethereum is increasing.

They wrote, Coinbase is One of the three issuers outside the United States that has issued Ethereum ETF shares on a large scale. For the recently approved Bitcoin ETF, Coinbase was the most popular cryptocurrency asset custodian among issuers. Overall, S&P Global's analysts believe that the impact of Ethereum ETF products anchored should depend on whether the issuers diversify their token pledge shares among multiple cryptocurrency custodians.