Ethereum Grayscale Trust outflows could weigh on ether price after today's ETF launch, analyst says

The Block2024/07/23 14:40

By:Brian McGleenon

The Grayscale Ethereum Trust exchange-traded fund conversion removes discounts and lock-in periods, which could prompt investors to sell their shares for cheaper ETFs from issuers like BlackRock and Fidelity, an analyst said.Outflows from the converted Grayscale’s Ethereum Trust could weigh on the price of ether in the initial period after the launch of ETF trading, the analyst added.

U.S. investors will be able to purchase ether through spot exchange-traded funds from today on the Nasdaq, the Chicago Board Options Exchange (CBOE), and the New York Stock Exchange. However, Hashkey Capital Liquid Fund Partner Jupiter Zheng has highlighted a short-term concern among investors over Grayscale Ethereum Trust's high fees, which could trigger a short-term market downturn.

"There could be a pushback a little while after the launch of Ethereum ETH +0.84% spot ETFs, that is outflows from the Grayscale Ether Trust may dampen market sentiment in the short while, like the bitcoin ETFs, investors may shift their funds to options with lower fees," Zheng said in an email sent to The Block.

The Grayscale Ethereum Trust ETF (ETHE) is a conversion from the original Grayscale Ethereum Trust. It already holds approximately $9 billion in ether.

Ethereum ETF absence of staking rewards

According to Zheng, another headwind that could hamper demand for spot Ethereum ETFs is the absence of staking rewards. Staking is a significant incentive for holding ether directly, as it allows investors to earn rewards.

"While ETFs provide a regulated and convenient way for institutional investors to gain exposure to Ethereum, retail investors and those looking to maximize returns might prefer holding Ethereum directly to benefit from staking rewards," Zheng said.

However, he added that investors who want staking are more likely to be crypto-native, and be comfortable with self-custody. Zheng said that for those who don’t want to deal with owning Ethereum directly, "these ETFs are perfect instruments for exposure to asset appreciation, even without staking yields."

Ethereum ETFs could lead to long-term boost for the asset

Despite warning of a potential short-term sell-off, Zhang expects Ethereum ETFs to boost long-term demand for ether by providing an easy entry point for institutional and retail investors – who might’ve sat out before.

"Our house view is that Ethereum could reach a price range of $6,000 to $10,000 by the end of this year, representing approximately 1.6x to 2.5x of its 52-week high," Zhang added.

The ether price traded flat over the past 24 hours, up a muted 0.3% to change hands for $3,496 at 8:49 a.m. ET, according to The Block's Price Page .

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