In-depth analysis: The birth and impact of ETH ETF

In May 2024, discussions surrounding the approval of Ethereum Spot ETF by the U.S. Securities and Exchange Commission (SEC) have become increasingly heated. After the SEC requested ETH ETF applicants to amend and resubmit the 19B-4 filing, the market speculates that the SEC may finally approve these applications on May 23, 2024.

Well-known investment management giants that have submitted applications for ETH ETFs include BlackRock, Grayscale, Bitwise, Invesco & Galaxy, Fidelity, VanEck, and 21Shares & ARK. In fact, VanEck's ETF has been listed on the U.S. financial market infrastructure company DTCC, but is currently inactive.

So, what is the background story of the Ethereum ETF? Why is it receiving so much attention in 2024? What impact will it have on the cryptocurrency market in the coming days or months? Will the impact be positive or negative? Let's find the answers to these hot questions together today.

What is ETH ETF and why has it become a focal point?

Ethereum ETF is an exchange-traded fund offered by investment and financial management companies through brokerage platforms and stock exchanges. Last year, the popularity of Bitcoin Spot ETF also sparked the interest of Ethereum enthusiasts in ETH Spot ETF.

As a result, many financial market participants submitted ETH ETF proposals to the SEC. This began with Grayscale proposing to the SEC to convert its Ethereum trust into an ETF. Subsequently, many other giants also joined the ranks in seeking approval for an ETH Spot ETF, but it has not yet been approved.

Will the SEC approve the ETH ETF?

The SEC's position on ETFs has undergone significant changes recently, especially in the past few weeks. Many believe this is related to the White House, as President Biden's term is nearing its end.

According to reports, SEC officials have instructed three U.S. exchanges, including Nasdaq, to re-evaluate their ETF applications. Approval of Form 19B-4 would enable these exchanges to offer ETH ETF trading.

As the deadline for the SEC's response to the ETH Spot ETF application approaches, cryptocurrency investors and traditional financial managers hope this will end their wait.

At the same time, if the SEC approves these ETFs, cryptocurrency bulls are full of expectations for the market, especially for the rise of Ethereum. Once approved, the price of Ethereum could see a significant increase in the short term, which the bulls are well aware of.

According to data from CryptoQuant, cryptocurrency traders have injected nearly $231 million into exchanges in anticipation of approval. This is the highest inflow of funds since March 2024.

Ethereum: Crypto circle change Netflow (Total)

On the contrary, if the SEC refuses to approve the ETH ETF, the market may also experience a significant pullback. In any case, market volatility is expected for at least a week after the SEC makes a decision on the fate of the Ethereum Spot ETF.

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In recent years, as the cryptocurrency market has gradually expanded, the value of cryptocurrencies has also been increasing, becoming one of the hot assets in the eyes of investors. At the same time, the inflow of funds from traditional markets is increasingly drawing attention from the cryptocurrency market. In this evolution of the cryptocurrency market over the past decade, the approval of Bitcoin Spot ETF is a significant event with far-reaching implications, and it may very well initiate the 2024 bull market in the cryptocurrency sector.

What is a Bitcoin ETF?

Bitcoin ETF (Exchange-Traded Fund) is a type of exchange-traded fund whose underlying asset is Bitcoin, with a trading method similar to traditional stocks. This financial instrument aims to allow investors to buy and sell Bitcoin through a stock exchange, avoiding the cumbersome process of directly holding and managing cryptocurrency assets. Bitcoin ETF may provide investors with a more convenient and transparent way to participate in the Bitcoin market, thereby driving its price further up.

After the approval of the Bitcoin ETF, will the price of Bitcoin rise or fall?

According to the Coin market section, previously, driven by the sentiment of the Bitcoin ETF approval, the price of Bitcoin rose from $26,000 in October last year, and at 6:00 AM on January 9, the price of Bitcoin broke through $47,000, reaching a nearly 20-month high. The last time the BTC trading price exceeded $46,000 was in April 2022.

Historically, the approval of gold ETFs has had a positive impact on gold prices. Similarly, the approval of the Bitcoin Spot ETF in the U.S. is expected to attract incremental funds, which could likely have a positive effect on Bitcoin's price. Galaxy Digital has previously conducted calculations based on gold as a reference, predicting that Bitcoin is expected to rise in the first year after the approval of the Spot ETF. However, it is worth noting that gold and Bitcoin are still different; the recognition of gold's value is not due to the approval of the ETF. Therefore, CryptoQuant analysts believe that after the approval of the Bitcoin ETF, the price of Bitcoin may correct down to $32,000. It is clear that investors should maintain a cautious attitude towards Bitcoin.

Bitcoin ETF becomes a driving force for traditional investors to enter.

Improved convenience and liquidity

As we all know, trading cryptocurrencies is more complex than traditional financial investments, requiring investors to have a certain level of technical knowledge and experience. The launch of Bitcoin ETF provides traditional investors with a more convenient and liquid investment method. By purchasing ETF shares on traditional exchanges, investors do not need to deal with issues such as private keys and secure storage, lowering the entry barrier for cryptocurrencies. The emergence of Bitcoin ETF simplifies the trading process, attracting more traditional financial investors to participate, thereby expanding the participant base of the Bitcoin market and improving the overall liquidity of the Bitcoin market.

According to the Coin cryptocurrency news section: On January 9, multiple Spot Bitcoin ETF applicants reduced the ETF fee rates in the amended S-1 filings submitted.

The ETF fee rate is not only one of the investment costs for investors, but it also directly affects the return on investment, making it one of the key factors for investors when choosing investments. From the fee schedule in the chart below, we can see that ARK 21Share and Bitwise both plan to adopt a promotional strategy with a 0 management fee to capture the market. Meanwhile, Bitwise has lowered its ETF fee to 0.20% on January 9, the lowest among all current products.

Compliance and Regulation

The compliance of Bitcoin ETFs is expected to enhance traditional investors' confidence in the crypto asset market. Since ETFs are regulated products within the traditional financial system, their launch may help alleviate some traditional investors' concerns about insufficient regulation in the crypto market. Bitcoin ETFs could attract more institutional capital inflow. Due to the anonymity and irreversibility characteristics of Bitcoin transactions, many traditional financial institutions have previously taken a cautious stance towards the Bitcoin market. However, compared to existing Bitcoin investment products, spot ETFs may meet the stricter compliance requirements set by regulators regarding custody arrangements, monitoring, and bankruptcy protection. The introduction of Bitcoin ETFs provides institutional investors with a more regulated and transparent investment method, thereby giving them greater confidence to participate in the Bitcoin market. The approval of Bitcoin ETFs will enhance the legitimacy of Bitcoin in traditional financial markets, subsequently increasing traditional investors' confidence.

Portfolio Diversification

Traditional investors often seek to achieve diversification in their portfolios to reduce overall investment risk. The introduction of Bitcoin as a cryptocurrency asset class can bring a certain hedging effect to traditional portfolios. Bitcoin ETFs provide traditional investors with the opportunity to increase portfolio diversification.

Bitcoin ETF is one of the key factors to trigger a bull market.

The introduction of Bitcoin ETFs provides traditional investors with an easier and more familiar way to bring funds from the traditional financial market into the cryptocurrency market by investing their money in Bitcoin ETFs. It can be said that Bitcoin ETFs are a key catalyst for leading traditional investors into the cryptocurrency market.

In addition to the influx of new funds, Bitcoin ETFs have also improved liquidity and transparency in the cryptocurrency market, while increasing compliance in the crypto space, providing more investors with the confidence to participate in the crypto market, which is crucial for the development and maturity of the entire cryptocurrency ecosystem. In summary, although Bitcoin ETFs still face some challenges, they are expected to bring more participants and vitality to the crypto market, serving as a key factor in driving the crypto market towards a bull market.

Conclusion

The approval of this Bitcoin ETF marks an important step towards the integration of the cryptocurrency market into the traditional financial system, and its marginal benefits could far exceed those of the gold ETF approval. **$ARPA **$PARTI **$PAXG **