Ether Spot ETFs to Attract $15B of Net Inflows in First 18 Months: Bitwise

Investors are likely to allocate funds to ETFs in proportion to the relative market caps of bitcoin and ether, the report said.

(Bloomberg) -- Ether (ETH) spot exchange-traded funds (ETFs), which are expected to be approved for trading in the U.S. in coming months, are likely to attract $15 billion of net inflows in their first 18 months, Bitwise Chief Investment Officer Matt Hougan wrote in a report on Monday.

One way to estimate potential inflows is to consider the relative market caps of bitcoin (BTC) and ether, the report said. Bitcoin is currently 74% of the combined market value, the report noted. Investors will probably allocate to bitcoin and ether ETFs in the same proportions.

U.S. investors have invested $56 billion in spot bitcoin ETFs since their introduction in January, a number that is expected to grow to $100 billion or more by the end of 2025 as large wirehouses approve the products for trading on their platforms, the asset manager said.

“Using this $100 billion figure as a reference, spot ether ETPs would need to attract $35 billion in assets to reach parity, a process I expect will take about 18 months,” Hougan wrote.

The Grayscale Ethereum Trust (ETHE), with $10 billion in assets under management (AUM), is expected to convert to a spot ETF, leaving $25 billion of inflows to reach parity.

In Canada, however, ether ETPs account for only 22%-23% of total AUM “slightly underperforming their absolute market cap weight,” the report noted. The discrepancy can be linked to bitcoin’s first-mover advantage, Hougan wrote.

“Some investors may have bought a bitcoin ETP and stopped there, thinking their crypto exposure was covered,” the report said, adding that this dynamic may be true in the U.S. also. Assuming ether ETFs only capture 22% of the market, as in Canada, cuts the estimate of net new inflows to $18 billion, and other factors chop off another $3 billion.

Read more: Ether Spot ETFs Could See Lower Demand Compared to Bitcoin Peers: Bernstein

The report also noted that ether ETFs are likely to face competition from bitcoin ETFs, which offer a lower expense ratio and may be seen as a more efficient way to gain exposure to the cryptocurrency market. Additionally, the approval of bitcoin futures ETFs in 2021 may have satisfied some investors' demand for crypto-related ETFs.

Despite these challenges, Hougan remains optimistic about the prospects for ether spot ETFs, highlighting the growing institutional interest in ether and the potential for increased demand as more investors become aware of the asset.

The approval of ether spot ETFs is widely anticipated by the crypto industry and investors, as it would mark a significant step in the regulatory landscape for cryptocurrencies in the U.S. Several applications for ether spot ETFs have been filed with the Securities and Exchange Commission (SEC), and a decision is expected in the coming months.