A managing partner at SEC-regulated Registered Investment Advisor Two Prime has discussed the potential impact of spot ether exchange-traded fund (ETF) launches on the cryptocurrency market. He explained that early demand could be greater than when spot bitcoin ETFs launched and suggested that a sharp uptick in ethereum price from the ether ETFs could lead to a resurgence of altcoins.
Alexander Blume Analyzes the Impact of ETH ETFs
Alexander Blume, managing partner at Two Prime, a U.S. Securities and Exchange Commission (SEC)-regulated Registered Investment Advisor (RIA) specializing in digital asset derivatives and managing over $500 million in assets, has shared his insights on spot ether exchange-traded funds (ETFs) that launched on Tuesday. With a background as a tech advisor to the Bill & Melinda Gates Foundation and a digital asset analyst for Eric Schmidt’s VC firm, Tomorrow Ventures, he previously founded Atomic Capital and worked at Merrill Lynch and a volatility-focused hedge fund.
Blume pointed out that unlike bitcoin, “There aren’t public market proxies for ETH exposure.” He added: “In the run-up to the BTC ETFs, we saw investments like Microstrategy and bitcoin mining equities run up swiftly as investors aimed to front-run the ETF demand. As a result, the initial price action was rather muted on BTC.” Blume opined:
This dynamic is not present for ETH. Capital sequestered to public markets didn’t have many places to go in advance of the ETFs. This may mean greater demand early on.
With ETH’s market cap being about a third of BTC’s and lower liquidity due to 25% of its supply being staked, Blume explained that proportionate inflows could create more volatility. He also pointed out that Grayscale investors might shift to established ETF brands due to high fees.
“The behavior of Grayscale investors remains a significant unknown. I believe we will likely see meaningful outflows from Grayscale because their fees are almost 10x higher than competing products. I suspect most of these outflows will stay within the ecosystem, however, and enter into more established ETF brands like Blackrock or Fidelity,” he described. “Additionally, we may see large inflow numbers that deceive in that they are being used by ‘basis trade’ investors shorting a proportionate amount of ETF futures on CME.”
Blume commented that although the ethereum ETFs do not currently offer staking, they remain the best option for mainstream investors to access ETH. He stated: “With staking yields at about 3%, this should not play a major role in demand for investors with few other options for accessing ETH.” He anticipates staking to be permitted next year after the election.
He continued:
I suspect we will see a resurgence of other ‘alt-coins’ if the ETH ETFs result in a sharp uptick in ETH price. Investors tend to take profits and put them into more speculative tokens.
“I don’t think we will see additional ETFs for cryptocurrencies like solana this year, but it does mean we are moving in that direction. There are some major differences between ETH and solana, like concentration of holders, market cap, and length of existence, but from a regulatory standpoint I don’t see how these future ETFs can ultimately be stopped,” he concluded.
What do you think about Alexander Blume’s expectations of ETH ETFs and their impact on the crypto market? Let us know in the comments section below.
