Why Spot ETFs Could Be a Game Changer for Ether Investors

Cryptocurrency ether (ETH) is struggling to match the impressive gains of its dominant counterpart, bitcoin (BTC). While both have seen significant growth in 2024, the pace is uneven.

Ether's Price Growth Trails Bitcoin

Despite a decent first quarter, ether remains far off its all-time high. In the first three months of 2024, ether rose roughly 53%, falling short of bitcoin's impressive 65% surge. As of today, ether trades around $3,612, a significant 26% below its November 2021 peak of $4,867.60.

Ethereum Upgrade Fails to Impress

Even a recent technical upgrade to the Ethereum blockchain, aimed at reducing transaction fees, failed to generate widespread excitement. This stands in stark contrast to the anticipation surrounding bitcoin's upcoming "halving" event, which will further restrict its supply.

Spot Ether ETFs: A Potential Game Changer?

Many analysts believe the key to unlocking ether's full potential lies in the approval of spot ether exchange-traded funds (ETFs) by the US Securities and Exchange Commission (SEC). The launch of several bitcoin ETFs in the US fueled institutional demand and propelled the price to record highs.

The industry awaits a decision on VanEck's spot ether ETF filing, with a potential approval date of May 23rd. If successful, Standard Chartered Bank predicts an optimistic trajectory for ether, reaching $8,000 by the end of 2024 and $14,000 by 2025.

Ether's Legal Ambiguity: A Roadblock?

Not everyone shares the optimism regarding SEC approval. Ether's legal classification remains ambiguous, raising concerns about the regulator's cautious approach. Unlike bitcoin, which is designated a commodity by the SEC, ether's status is unclear.

Proof-of-Stake Creates Complexity

Ethereum's "proof-of-stake" blockchain model, where users earn rewards for locking up tokens, poses an additional hurdle. This "staking" mechanism could potentially categorise ether as a security, subject to stricter regulations that clash with the decentralised ethos of cryptocurrency. This complexity further complicates the creation of ETFs, as staked ether often offers higher yields than passively held tokens.

Institutional Demand: Bitcoin Leads the Way

Currently, institutional demand for ether pales in comparison to bitcoin. Digital asset funds tracking ether witnessed outflows of $46.4 million in March 2024, a stark contrast to the over $4 billion inflow for bitcoin-based products.

Beyond Price: Ethereum's Technological Potential

While bitcoin is lagging bitcoin in price performance, some believe the underlying Ethereum technology holds immense value. As the backbone of Web3, Ethereum powers various applications in decentralised finance (DeFi) and blockchain gaming.

BlackRock's recent launch of a tokenized fund on the Ethereum blockchain further emphasises the platform's potential for broader asset tokenization. Notably, over 80% of the $2 billion worth of tokenized traditional assets (commodities, securities, etc.) currently exist on the Ethereum network.

A Multifaceted Landscape

Ether's price trajectory depends on a mix of factors, including potential ETF approval, regulatory clarity surrounding its classification, and the continued development of the Ethereum ecosystem. While price performance may not currently match bitcoin, the technological advancements on Ethereum offer exciting possibilities for the future.