Final Ethereum ETFs Approval May Trigger ETHE Outflows

The recent approval of spot Ethereum (ETH) exchange-traded funds (ETFs) by the US Securities and Exchange Commission (SEC) has stirred the crypto market. ETH and other altcoins in its ecosystem witnessed a renewed interest, with their prices increasing significantly.

Analysts at crypto research firm Kaiko shared their thoughts regarding the SEC’s preliminary approval. They see the SEC’s nod as a significant shift in how ETH is perceived and regulated, with implications for its future performance and market dynamics.

Anticipated Market Movements and Investor Reactions

Will Cai, Head of Indices at Kaiko, noted that the SEC’s request to remove staking aspects from spot Ethereum ETFs “implicitly” classifies ETH as a commodity. Cai sees this move could have broad regulatory implications for similar tokens with staking mechanisms in the US.

“With these approvals, the SEC implicitly stated that ETH (without staking) is a commodity rather than a security. This isn’t just about access to ETH, but has significant and likely positive ramifications on how all similar tokens will be regulated in the U.S. with respect to trading, custody, transfer, etc,” Cai said.

Read more: Ethereum ETF Explained: What It Is and How It Works

Cai’s insight aligns with those of other industry experts who view this development as a pivotal moment for the crypto industry. Daniel Serb, Vice President of Business Development at MultiversX, emphasized the positive implications for crypto and mainstream investors. He notes the potential for increased adoption and the need for robust blockchain infrastructure to handle this growth.

“Despite questions around control of crypto assets emerging, we see this ruling lifting all boats and boosting the next wave of adoption. While it’s a matter of excitement for the industry, proponents of crypto would do well to ensure the ecosystem can handle increased compute demand while maintaining security and decentralization,” Serb told BeInCrypto.

Furthermore, Kaiko’s analysis examines Ethereum’s implied volatility surge. This condition indicates market stress before stabilizing. Derivatives markets also mirrored this shift in sentiment, with Ethereum perpetual futures funding rates hitting multi-month highs and open interest reaching a record $11 billion.

Despite these positive signals, Kaiko analysts expect potential selling pressure on ETH due to likely outflows from Grayscale Ethereum Trust (ETHE), which has recently traded at a discount between 6% and 26%. As the largest ETH investment vehicle with over $11 billion in assets, ETHE might face significant redemptions similar to those seen with Grayscale Bitcoin Trust (GBTC) following the launch of spot Bitcoin ETFs.

“Should we see a similar magnitude of outflows from ETHE, this would amount to $110 million of average daily outflows or 30% of ETH’s average daily volume on Coinbase,” they wrote.

Read more: How to Invest in Ethereum ETFs?

Nevertheless, the approval of spot Ethereum ETFs signifies a major milestone with far-reaching implications for the broader crypto market. While potential outflows from Grayscale’s ETHE pose short-term challenges, the long-term outlook for Ethereum and related tokens remains positive as regulatory clarity and market dynamics evolve.