Ethereum (ETHUSD)

[ap17]

WAVE OF DEMAND COMING FOR ETH 🌊
With the ETFs potentially launching next week, $15 billion is on the way for Ethereum.

That’s the latest prediction out from Matt Hougan.

Matt Hougan
Matt Hougan is the Chief Investment Officer at Bitwise, the 4th largest Bitcoin ETF issuer.

Every week, Matt releases a market commentary memo.

In his latest, he broke down why the Ethereum ETFs will attract billions.

When estimating potential inflows, a good starting point is the relative size of Bitcoin and Ethereum.

Bitcoin: $1,266 billion (74% of the combined market)

Ethereum: $432 billion (26% of the combined market)

“U.S. investors currently have $56 billion invested in spot Bitcoin ETPs. I suspect this will reach $100 billion or more by the end of 2025, as these ETFs mature and are approved on platforms like Morgan Stanley and Merrill Lynch.”


Matt Hougan
Using this $100 billion figure, ETH ETFs would need to attract $35 billion in assets to reach parity. (Matt expects this to take ~18 months)

BUT, Grayscale’s ETH trust is converting to an ETF, bringing $10 billion in assets with it.

So this brings the required inflow number down to $25 billion.

It’s also worth taking a look at foreign crypto ETP markets.

Europe

Bitcoin ETPs: €4,601m (78%)

Ethereum ETPs: €1,305m (22%)

Canada

Bitcoin ETPs: $4,942m CAD (77%)

Ethereum ETPs: $1,475m CAD (23%)

It’s interesting that the asset split is almost identical between markets.

And roughly in line with the market cap breakdown above.

“As a result, let’s take down our estimate and assume Ethereum ETPs only get 22% of the market, matching Canada. That lowers our estimate of net inflows from $25 billion to $18 billion, excluding the assets from Grayscale’s trust.”


Matt Hougan
According to Matt, a significant fraction of the US Bitcoin ETF flows are related to the carry trade.

The carry trade involves buying spot Bitcoin ETFs and then selling Bitcoin futures contracts against that position.

It’s a little complex but basically the trade profits from the fact that Bitcoin futures contracts currently trade at a premium to the spot price of Bitcoin.

If you’d like to learn more about the carry trade, click here.

Matt estimates that ~$10 billion of the current ETF assets are linked to the carry trade.

“For that reason we need to remove the $10 billion in carry-trade-related AUM when sizing the Bitcoin market. If we do that, the Bitcoin ETP denominator falls to $90 billion AUM. With this, our estimate for net inflows for Ethereum ETPs goes from $18 billion to $15 billion.”


Matt Hougan
However, this approach doesn’t touch on 2 key areas that could significantly impact flows:

Some are predicting the Ethereum ETFs to underperform due to no staking

There are multiple tailwinds behind Ethereum right now - stablecoins, regulatory clarity, Layer 2’s etc. A bullish wave could cause the ETFs to outperform

Regardless, Matt believes $15 billion in net inflows over the first 18 months is a good starting point:

“Still, I think $15 billion in the next 18 months is a good starting point. My gut tells me we’ll do better than that; ETH is a compelling asset powering the world’s most versatile blockchain. But even $15 billion in net new demand will have a dramatic impact on the Ethereum market.”


Matt Hougan
With Ethereum’s supply so tightly wound, $15 billion in new demand would be explosive.. 💣