Spot Ethereum ETFs Enter the U.S. Market
This year, the United States witnessed the launch of the first batch of spot Ethereum exchange-traded funds (ETFs) on July 23, attracting inflows exceeding $100 million. While these positive inflows indicate a promising start for the funds, it is unlikely that Ethereum (ETH) will experience the same explosive growth as Bitcoin (BTC) did following the introduction of its ETFs earlier this year.
ETH May Not See BTC-like Growth
In a recent weekly crypto report by CryptoQuant, on-chain experts highlighted that the impact of new capital entering digital asset products like ETFs will likely differ between ETH and BTC due to their distinct multiplier effects.
- ETH Multiplier Lower Than BTC:
- Analysts suggest that Ether’s multiplier has been consistently lower than that of Bitcoin throughout 2024.
- The multiplier represents the ratio between changes in market capitalization and realized capitalization, illustrating how Ether’s market value responds less energetically to new investment inflows compared to Bitcoin.
- For every $1 invested in Bitcoin, its market cap increased by $5, while Ether’s market cap rose by $1.34 for every $1 invested.
The report also identified other factors contributing to the potential hindrance of ETH’s growth post-ETF launch, with one key factor being the increase in Ether’s supply.
- ETH Supply on the Rise:
- Following the implementation of the Dencun upgrade on the Ethereum network in March, Ether’s supply has been on an upward trajectory.
- Dencun introduced new features that led to a rise in data blobs and a significant reduction in transaction fees, resulting in fewer ETH being burned.
- Prior to Dencun, Ethereum had mechanisms in place to burn transaction fees, ensuring a deflationary network. However, since the upgrade, Ether’s supply has been increasing rapidly, marking the sharpest incline since The Merge in September 2022.
- As of now, ETH has a total and circulating supply of 120.22 million, with no maximum supply, while BTC has a capped supply of 21 million.
Experts suggest that this shift in Ethereum’s monetary policy is eroding the network’s reputation as an ultra-sound money asset, a concept asserting that Ethereum could potentially become more stable than Bitcoin over time by implementing features that preserve purchasing power and reduce ETH supply.
While there are positive signs indicating a potential recovery in ETH’s price and momentum, it’s essential to consider the asset’s spot trading volume on centralized exchanges, which has been significantly lower in comparison to Bitcoin throughout the year.
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