Is the Eth ETF launch a “sell the news” scenario?

Spot Ethereum Exchange Traded Funds will launch on July 23, following a rule change made by the SEC two months ago.

According to a report by Kaiko, the first inflows into these Exchange Traded Funds (ETFs) will likely impact the price of Ethereum (ETH). However, whether the impact will be positive or negative is still under debate.

“Late last year, the launch of ETH futures-based ETFs in the US was met with poor demand,” said Will Cai, head of indexes at Kaiko. “All eyes are on the spot launch of the ETFs with high hopes of rapid asset accumulation. While a full demand picture may not emerge for several months, the ETH price may be sensitive to the inflows in the early days.”

Various Ethereum ETFs from BlackRock, Fidelity, Bitwise, VanEck, 21Shares, Invesco, Franklin Templeton, and Grayscale are scheduled to begin trading on July 23.

What do we expect from Ethereum ETFs today?

We expect them to start trading tomorrow. That means we’ll see a bunch of filings on the SEC site today saying that the ETF prospectuses have become “effective.” Probably around or after the market close. Here are the entrants: picture.twitter.com/AkBxEjBRvv

— James Seyffart (@JSeyff) July 22, 2024

The influx of money could send ETH higher, even though ETH futures ETFs have received a lukewarm reception over the past year. There is cautious optimism about the asset accumulation of spot ETFs and how that could reflect on the ETH price.

ETH prices briefly rose in May following the spot ETF approval but have been trending downward since then. At $3,500, ETH is facing a critical supply wall.

Grayscale’s ETH ETF fees

Grayscale, a leading crypto player, plans to convert its ETHE trust into a spot ETF and launch a mini-trust backed by $1 billion from the original fund. Grayscale’s ETHE fee will remain at 2.5%, much higher than its competitors.

Many issuers will offer fee waivers to attract investors, with some offering fee waivers for six months to a year or until assets reach between $500 million and $2.5 billion. This fee war reflects the fierce competition in the ETF market and has led ARK Invest to exit the ETH ETF race.

This reflects Grayscale’s Bitcoin (BTC) ETF strategy, where it has maintained high fees despite competitive pressures and sell-offs.

Source: Kaiko

Grayscale’s decision to keep its fees high could lead to ETF outflows and sell-off prices similar to GBTC’s post-conversion performance, according to Kaiko.

The discount rate of ETHE to its net asset value has narrowed recently, indicating investors’ interest in purchasing ETHE below par value and redeeming it to make a profit on its net asset value after conversion.

ETH ETF volatility

Additionally, implied volatility for ETH has increased over the past few weeks due to the failed assassination attempt on Donald Trump and President Joe Biden’s announcement that he will not run for president again, reflecting investor nervousness over the upcoming ETF launch.

According to Kaiko, volatility in contracts expiring at the end of July rose from 59% to 67%, reflecting the market’s expectation of initial introductory figures and potential price sensitivity.