21Shares exec discusses ETH ETF launch and market dynamics

Ethereum ETFs finally hit the US markets on July 23, 2024, following approval from the Securities and Exchange Commission.

Since the launch of Bitcoin ETFs in January, excitement around Ethereum equivalents has been growing. Ethereum ETFs generated over $1.1 billion in trading volume in their first day.

This early success has filled the market with speculation about what will happen next. Will Ethereum ETFs mirror Bitcoin’s success? Will we see more crypto ETFs?

Crypto.news had the opportunity to speak with Federico Brokate, VP of the US Business Unit at 21Shares, one of the largest crypto ETF issuers, to gain some insights on the subject. Despite lagging behind Bitcoin in launch, Brokate expects Ethereum ETFs to see a surge in adoption in the coming months.

Bitcoin ETFs have achieved remarkable success with $17 billion in net inflows since their launch. Given Ether’s relative unfamiliarity and 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 unprecedented and has exceeded all expectations, driven by institutional and retail investor adoption. We expect to see strong demand for spot ethereum ETFs from all types of investors, similar to bitcoin. If we look at other ETF markets around the world, such as the European market, we see that the asset allocation between bitcoin and ethereum tends to follow market cap weightings. This could mean that spot bitcoin ETFs capture around 70% of the assets, while spot ethereum ETFs capture around 30%. What we saw on day 1 of trading largely supports this theory – spot ethereum ETFs saw around $1 billion in total volume, which is around 23% of the volume of 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 $1 billion in volume on its first day of trading, which we see as a very successful first day. This demonstrates the demand and excitement for digital asset exchange-traded products by U.S. investors. Every spot ethereum ETF in the category ranked in the top 10 percent in first-day volume among all ETFs launched in the U.S. last year. This is quite impressive for a new product category, considering that the launch occurred during the traditionally slower summer months. We expect to see faster adoption in the fall.

Ethereum is viewed as a technology investment rather than a store of value. How do you think this perception will impact 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 generally better understood by investors. The value proposition for Bitcoin is well-defined as digital gold. It provides investors with uncorrelated returns and acts as a hedge against economic instability. Ethereum, on the other hand, is inherently more complex and resembles a growth equity or technology investment. In the short term, we see Ethereum as a platform for tokenization, stablecoins, and decentralized finance. In terms of adoption, our clients around the world tend to add both positions to their portfolios rather than swapping one for the other. This is supported by the fact that adding both positions 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 we learn more.

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

The market has shown that digital assets are here to stay, with many asset managers, particularly RIAs, being early adopters of digital asset ETFs. However, we believe we are still in the very early stages of adoption by the broader asset ecosystem, and in fact, we are starting to see an acceleration here as we complete our long-term due diligence processes. Adoption by asset managers will not happen overnight. We will see varying adoption rates across this group, but ultimately, we believe they will be among the largest buyers of digital asset ETFs going forward. As a result, we see the demand there, and we are excited to be able to offer investors in the U.S. market exposure to the Bitcoin and Ethereum blockchains through an ETF wrapper on a regulated exchange.

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

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