Potential inflows and Ethereum price impact analysis

Today, Ethereum ETFs made their long-awaited debut on major stock exchanges. This article will analyze projected inflows for Ethereum ETFs and how they might influence the future price of ETH. By comparing the recent success of Bitcoin ETFs, we will explore the potential impact on Ethereum prices in the coming months.

Understanding Bitcoin ETF inflows and their implications for Ethereum

While Bitcoin ETFs have seen substantial inflows, expectations for Ethereum ETFs are more modest. Since their inception, Bitcoin ETFs have attracted significant investor interest. As of July 18, these financial instruments saw a net inflow of $16.67 billion over approximately six months. Despite being the second-largest cryptocurrency, Ethereum is often perceived differently from Bitcoin. It is not typically seen as a store of value or “digital gold.” This distinction, combined with Bitcoin’s more established market position, suggests that Ethereum may not attract the same level of ETF inflows as Bitcoin.

Eric Balchunas, a senior ETF analyst at Bloomberg, has provided conservative estimates for Ethereum ETF inflows and believes that these funds will attract only 10-15% of the inflows seen by Bitcoin ETFs.

Additionally, when looking at the derivatives market, the open interest for Ethereum futures and options on the CME is approximately $1.67 billion, while Bitcoin’s open interest stands at $12.56 billion. The CME, which mainly serves institutional investors, shows that Ethereum’s share is about 13.3% of Bitcoin’s. In the broader derivatives market, Ethereum’s total open interest is $20.74 billion compared to Bitcoin’s $54.1 billion, which translates to a 38.34% ratio. These figures reinforce the conservative projections for Ethereum ETF inflows compared to Bitcoin.

Academic insights into ETF effects on market prices

A question often arises: why would ETF inflows impact the price of an underlying asset, such as Ethereum? Several academic studies have confirmed ETFs’ significant influence on underlying asset prices. Research by Ben-David et al. (2018) demonstrates that ETFs can lead to increased volatility and price deviations from fundamental values in the securities they track. The study attributes these effects to the mechanical rebalancing and trading strategies employed by ETFs, which can amplify price movements and introduce non-fundamental shocks into the market.

Further supporting evidence comes from Luca J. Liebi’s literature review. The research highlights ETFs’ role in improving market liquidity and price efficiency under normal conditions. Empirical evidence suggests that ETFs, particularly those with high leverage, can magnify price changes in underlying assets due to their rebalancing activities. These studies collectively indicate that ETF inflows tend to push up the prices of the assets they track, lending credence to the hypothesis that Ethereum ETFs could similarly impact ETH prices.

Potential inflow scenarios for Ethereum ETFs

Based on the analysis above, four potential scenarios for Ethereum ETF inflows emerge:

These projections estimate the potential inflows Ethereum ETFs might experience by the end of 2024, using the $16.668 billion figure for Bitcoin as a baseline.

Ethereum price impact analysis

To estimate the price impact of these potential inflows, four multipliers are considered: 0.5x, 1x, 1.5x, and 2x. These multipliers reflect varying degrees of price sensitivity to ETF inflows.

Assuming a current Ethereum price of $3,400, the estimated price impact by the end of 2024, solely from ETF inflows, would range from $170 to $1,700. With more likely multipliers (1x to 1.5x), the price increase would be between $340 and $1,275. This suggests a potential Ethereum price range of $3,740 to $4,675.