Thomas Fahrer, co-founder of Apollo, a firm focused on Bitcoin adoption, has issued a stark warning regarding the potential market dynamics following the approval of spot Ethereum ETFs. As the market anticipates this new development, Fahrer suggests that the transition might not be smooth for Ethereum. He pointed out that the Grayscale Ethereum Trust, launched in 2017 and accumulated most of its $9 billion dollars worth of ETH well before staking existed, will now have its funds unlocked. This could lead to a potential bloodbath in the market, accelerating the trade from Ethereum to Bitcoin. The impending approval of spot Ethereum ETFs, similar to the earlier launch of spot Bitcoin ETFs, is expected to convert the $9 billion (approximately 2.94 million ETH) locked in Grayscale’s Ethereum Trust (ETHE) into one such ETF.
Looking at historical precedent with Bitcoin, there is a potential for volatility. Similar to Bitcoin’s experience after the approval of spot Bitcoin ETFs, Ethereum may face challenges. Bitcoin underwent more than a 20% drop in value within 12 days amid significant sell-offs from similar conversions. The transition from an Ethereum Trust to a spot ETF by Grayscale during the Bitcoin ETF approval demonstrated that it could be a “sell the news” event. Grayscale’s Bitcoin Trust (GBTC) saw outflows of over 50% of its BTC holdings post-approval, indicating a significant impact on the market. Additionally, the fact that ETH staking is a lucrative option for earning additional yield might further complicate matters for Ethereum.
Julio Moreno, head of research at CryptoQuant, pointed out a critical market indicator that suggests the market has already begun to react to the imminent approval of the Ethereum spot ETF. He highlighted how Grayscale’s ETHE discount to ETH has significantly narrowed in the last few days, similar to what happened between GBTC and Bitcoin as the Bitcoin Spot ETF approval neared. This could indicate that the market is already pricing in the impact of the upcoming ETF approval on Ethereum’s valuation.
While the short-term impact of the Ethereum ETF approval may mirror the turbulent times seen during the Bitcoin ETF launch, the long-term implications could be different. Observers note that despite the initial downturns in Bitcoin’s valuation post-ETF approval, the introduction of a spot ETF eventually led to greater market acceptance and a price surge. Crypto analyst Miles Deutscher even suggested that if ETH follows a similar trend to BTC post-ETF approval, it could reach $6,446 by July 23. This indicates a potential for growth in Ethereum’s value, despite the initial market volatility expected.
The approval of spot Ethereum ETFs could bring about significant market dynamics and volatility in the short term. However, history has shown that such events can ultimately lead to long-term benefits for the cryptocurrency. It will be crucial for investors and traders to closely monitor the market’s reaction to the ETF approval and adjust their strategies accordingly to navigate through the potential market fluctuations.