Key Points
- The SEC seems ready to approve spot Ethereum ETFs, potentially changing the digital asset sector’s trajectory.
- Ethereum co-founder Joseph Lubin predicts a supply crunch for ETH due to increased demand following ETF approval.
The United States Securities and Exchange Commission (SEC) might be on the verge of approving spot Ethereum exchange-traded funds (ETFs). This move could significantly alter the path of the digital asset sector.
Joseph Lubin, Ethereum’s co-founder and CEO of Consensys, discussed the potential impact of ETF approval on ETH. Lubin anticipates a supply crunch for ETH as demand surges.
Implications of Ether’s Limited Supply and Increased Demand
Lubin pointed out the potential increase in institutional interest in Ether following the SEC’s approval of spot ETH ETF applications.
“Institutions that have already gained exposure to Bitcoin through the asset’s freshly launched ETFs will most likely want to diversify into that second approved ETF,” Lubin said. He emphasized the “natural, pent-up pressure to purchase Ether” that these ETFs would trigger.
The potential approval of spot Ethereum ETFs follows the approval given to spot Bitcoin ETFs in January. The Bitcoin ETFs saw authorized participants – firms tasked with purchasing Bitcoin for the ETFs – buying idle coins from exchanges or over-the-counter (OTC) counterparties.
However, ETH ETFs might have a more significant effect. Currently, the Ethereum network is staking a substantial portion of Ether’s supply, unlike Bitcoin. On-chain data shows that staking contracts lock over 27% of the total Ether supply, generating yield for their owners. This substantial amount of staked Ether effectively reduces the available supply for ETF-related purchases.
A similar analysis was shared by Dan Kazenoff, a founding member of BeetsDAO. Kazenoff added that ETH ETFs cannot be staked while highlighting that the world is “finally waking up to Ethereum”.
Lubin noted that the core protocol, DeFi systems, and DAOs consume substantial ETH which will affect the available supply for new ETF inflows. Therefore, ETH’s market value, which is already more reactive to inflows because of its lower market cap compared to Bitcoin, may experience increased volatility.
Further, Lubin expects renewed activity on the Ethereum network to burn a considerable amount of ETH over time. Interestingly, the burn mechanism is part of Ethereum’s fee structure and could limit the ETH available for ETFs, leading to a supply crunch.
During the debut of BTC ETFs, Banking institutions like Bank of America Corp.’s Merrill arm and Wells Fargo & Co.’s brokerage unit decided to offer BTC ETF products to their clients. The digital asset sector could witness similar movements and the supply crunch for Ethereum ETFs could be even more pronounced due to constrained supply.
Lubin described the potential approval of Ethereum ETFs as a “profound watershed moment” for both Ethereum and the broader crypto industry. The expected supply crunch could drive Ether’s price higher. The price of ETH rose 29.6% in seven days, marking a 108.7% increase in the past year.
As previously reported, Standard Chartered predicted that Ether could potentially hit the $8,000 price level this year if the SEC greenlights ETH ETF applications filed by leading institutions like BlackRock, VanEck, and Fidelity.
