21Shares Exec Discusses ETH ETF Launch And Market Dynamics

Ethereum ETFs finally hit the U.S. markets on July 23, 2024, with a nod from the Securities and Exchange Commission. 

Since the introduction of Bitcoin ETFs in January, the excitement around its Ethereum equivalents has steadily grown. On their first day, Ethereum ETFs generated over $1.1 billion in trading volume.

This early success has the market buzzing with speculation on what’s next. Will Ethereum ETFs mirror Bitcoin’s success? Will we see other crypto ETFs?

Crypto.news had the opportunity to speak with Federico Brokate, VP, Head of the U.S. Business for 21Shares, one of largest crypto ETF issuers, to gain some insights on the topic. Despite lagging behind Bitcoin at launch, Brokate expects Ethereum ETFs to see an uptick in adoption in the coming months.

Bitcoin ETFs have achieved remarkable success, with $17 billion in net inflows since their launch. Considering Ether’s relative unfamiliarity and its different market dynamics, including a smaller market cap, do you expect Ether ETFs to achieve a similar level of success?

The success of the spot bitcoin ETF suite has been unparalleled, outperforming all expectations driven by the adoption of institutional and retail investors alike. For the spot ethereum ETFs, similar to bitcoin, we expect to see strong demand from all types of investors as well. If we look at other ETF markets around the world, like the European market, for example, what we find is the asset split between Bitcoin and Ethereum tends to follow their market cap weighting. This could translate into spot bitcoin ETFs capturing ~70% of assets while spot ethereum ETFs would capture ~30%. What we saw on day 1 of trading largely supports this theory – spot ethereum ETFs saw ~$1bn in total volume, which is ~23% of what the spot Bitcoin ETFs on their first day.

Do you think the launch of ETH ETFs was a success?

The spot ethereum ETF category saw over $1bn in volume on its first day of trading, which we view as a highly successful day one. This demonstrates the demand for and excitement around digital asset exchange-traded products by U.S. investors. Every spot Ethereum ETF in the category ranked in the top decile for day-one trading volumes for all ETFs launched over the past year in the US. This is very impressive for a new product category, given the launch took place during the traditionally slower summer months. We expect to see more accelerated adoption come the fall period.

Ethereum is viewed as a technology investment rather than a store of value. How do you think this perception will influence the success and adoption of Ether ETFs compared to Bitcoin ETFs?

Bitcoin and Ethereum are the two largest cryptocurrencies by market cap; however, bitcoin’s value proposition and portfolio fit are better understood by investors broadly. The value proposition for Bitcoin is well-defined as digital gold. It provides investors with non-correlated returns and serves as a hedge against economic instability. Ethereum, on the other hand, is more complex in nature and is akin to a growth equity or technology investment. In the near term, we view Ethereum as a platform for tokenization, stablecoins, and decentralized finance. In terms of adoption, our clients around the world tend to add both exposures to their portfolios instead of replacing one with the other. This is supported by the fact that adding both exposures to a traditional 60/40 portfolio can provide investors with a superior risk-adjusted return profile. We believe in the disruptive potential of the ethereum platform, and investors will, too, as they learn more.

Given that many wealth managers have already allocated significant capital to Bitcoin ETFs and may have reached their crypto investment limits, will this affect their enthusiasm and potential investment in Ether ETFs?

The market has demonstrated that digital assets are here to stay, with many wealth managers, RIAs in particular, being early adopters of digital asset ETFs. However, we believe we are still very early on in the adoption process by the broader wealth ecosystem and are, in fact, beginning to see an acceleration here as they complete their lengthy due diligence process. Adoption by wealth managers will not happen all at once. We’re going to see different adoption rates by this cohort, but ultimately, we believe they will be amongst the largest buyers of digital asset ETFs going forward. Ultimately, we see the demand is there, and we are thrilled to be able to offer investors in the U.S. market exposure to Bitcoin and ethereum blockchains through the ETF wrapper on a regulated exchange.

Now that another ETF is here, do you think other cryptocurrencies like Solana are next in line for ETF approval? What factors could influence this decision?

21Shares is excited by the potential to bring to our US clients an ETF that provides access to the Solana ecosystem. Product innovation is a core part of our mission of bringing easily accessible digital asset products to our clients. We’re among the first issuers to file an application with the SEC for a Solana ETF and are working with them to bring this product to the US market. We believe many cryptocurrencies qualify as eligible underlyings for 33′ Act ETFs. While including a digital asset in a CME futures contract has legal precedent for the subsequent ETF approval, it should not be the sole criterion for ETF eligibility. We have a great spot Solana ETF, in Europe and look forward to potentially bringing this exposure to our clients in the US, expanding access to crypto as an asset class.