How the billions from Greyscale could impact the launch of an Ethereum ETF.

In a surprise to the market, the US Securities and Exchange Commission (SEC) approved eight positions on Ethereum ETFs on May 23, leading to a wave of positive sentiment.

But perhaps more surprisingly, the price of Ether (ETH) did not react to the news.

Before the SEC announcement on May 23, the price of Ether was $3,742.31. It rose to $3,959.28 on May 27 before falling to $3859.39 on May 28. A consecutive bull run is yet to come.

In the days leading up to the approval, the price of Ether increased by about a third. However, concerns about Grayscale Ethereum Trust (ETHE), which manages an $11 billion fund, have become a significant factor influencing price action, after signs that the SEC may reverse its decision.

Related: Spot Ethereum ETFs: A Beginner's Guide

After seeing massive outflows from Greyscale Bitcoin Trust (GBTC) for months, markets are now concerned about the possibility of a repeat.

In the month since spot Bitcoin ETFs were approved, GBTC has seen $6.5 billion spent, which is 23% of its assets under management (AUM).

A May 27 Caico Research report estimated that if history repeats itself, the average daily outflow from ETHE will be $110 million.

Industry expectations

Tony Mathews, Co-Founder of the LAOS Network, a layer-1 platform that enables asset creation on Ethereum Virtual Machine compatible chains, also predicts major outflows from ETHE.

“High inflows from the Grayscale Ethereum Trust to the new ETF are expected due to the ETF's high liquidity, narrow spread and low fees,” Matthews told Cointelegraph. “Due to lower entry barriers and fees, ETFs target a broader market than ETEs.”

While Matthews sees similarities between GBTC and ETHE, he also notes a key difference in the importance of these grayscale products to their respective markets.

Related: Bitcoin ETFs: A Beginner's Guide to Trading Funds

When Bitcoin ETFs were adopted, GBTC had approximately $30 billion worth of Bitcoin (BTC), which is 3.5% of BTC's market value. But ETHE only has $11 billion worth of Ether, which represents 2.2% of the market.

“Given ETHE's small market cap percentage, the impact of ETFs should be proportionally greater than BTC, as outflows from ETHE to the new ETFs should be more limited,” Mateos said.

But according to Matthews, despite the short-term exits, the long-term picture should be positive.

“In the long term, if the adoption of the ETH ETF leads to a continuous flow of funds, the resulting increase in demand should raise prices,” he said, adding that the Ethereum network was more attractive to environmental, social and governance (ESG) oriented investors. As Bitcoin emits only a small fraction of carbon emissions.

“Since Ethereum operates on a proof-of-stake model (unlike Bitcoin's proof-of-work), climate-conscious investors may choose an ETH ETF over a BTC ETF to gain exposure to the crypto market, which may also impact the BTC ETF. “

Kurt Hemeker, CEO of the Minna Foundation, which operates the ZK blockchain Minna protocol, also emphasized the importance of Ethereum's environmental protection in its positive long-term outlook.

“For both retail and institutional investors, the additional ESG benefits of the Spot ETH ETF make it an attractive investment portfolio,” Hemecker said.

Reduce the flow of expenses

A number of factors can reduce the outflow from ETHE. While the GBTC example may be useful to a point, Bitcoin and Ethereum are very different assets, making it silly to compare the two one-on-one.

James Toledano, the chief operating officer of Savel, a self-sustaining crypto wallet, did not reduce the pressure of ETHE's exit, but pointed out several factors that could calm the market.

“The low supply of Ethereum on the exchange means that there may not be enough sell-side to meet all the demand without a significant impact on the price.”

According to Toledano, this limited supply of tokens can “provide natural price support, as any significant selloff can stabilize prices as the limited supply is met.”

Manthan Dave Teledano, founder of digital asset watchdog Palisade, backs him up on this point. Like Toledano, Dave believes that the historically low supply of Ethereum on the exchange will stabilize the price and even increase even if it goes out.

“This situation often reflects long-term investment sentiment as investors move ETH into personal wallets or stocks, which reflects a bullish market outlook,” Dave said.

Other things to consider

Ethereum volume on exchanges is one more consideration among many;

As Dave puts it: “Ethereum market behavior is complex and influenced by many factors beyond supply levels. So, while a reduced supply of currency may moderate some of the effects of Ethereum's flow, it is not the only factor affecting Ethereum's market activity.

For example, Toledano said: “Ethereum's transaction fee burning mechanism will reduce the circulating supply from time to time, offsetting some of the selling pressure of Ethereum's flow.” In Ethereum 2.0, a large amount of ETH is held in stock and not available for sale, further reducing the available supply and reducing potential price impacts.

Over at X, Kris Kay from the Defy Donuts YouTube channel pointed out ETH's slow rate of consumption, which is often dismissed, concluding that every dollar flowing into ETH ETFs results in multiple times the price appreciation of a BTC ETF.

Dave also pointed to other markets outside of the US, reminding him of crypto's international status.

“In line with this momentum, the London Stock Exchange is set to list ETPs for the first time later this month, following the FCA's approval of futures from Wisdomtree (WT) and 21Shares.”

Positive feeling

Wherever the industry figures come down to the inflow-to-outflow debate, the spot approval Ethereum ETF has generated positivity in the market.

Jess Holgraf, CEO of cross-chain app WalletConnect, told Cointelegraph that “finally, the ETF approval is a real confidence booster for the industry” and opens up Ethereum to a much wider range of buyers. . That combined with positive headwinds in Ethereum in general[…] I think he writes positive signs.

And while most figures are content to simply predict upward price pressure, Oleg Fomenko, founder of Web3's fitness app LabEconomy, recently gave Cointelegraph his prediction for the price of ETH.

“Additional institutional money coming in through approved EFAs will push the price higher. Because of this development, I predict the price of ETH may rise up to $7,000 in the next three months,” Fomenko said.

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