In a recent communication to investors, Matt Hougan, Bitwise’s Chief Investment Officer (CIO), offered keen insights into the inflows that US Spot Ethereum ETFs could potentially attract. Hougan articulated that these funds could well pull as much as $15 billion in their initial 18 months of trading. Additionally, he expounded on the methodology he employed to forecast these impressive figures, emphasizing that his projections were underpinned by meticulous market analysis and not merely random speculation.
To begin with, Hougan drew attention to the market capitalizations of Bitcoin and Ethereum. He explained his hypothesis that investors will likely distribute their funds amongst their corresponding exchange-traded products (ETPs) in a manner that mirrors their market capitalizations.
Shedding light on investment patterns, Hougan revealed that US investors have so far directed $56 billion into Spot Bitcoin ETPs. By drawing the future trajectory of these funds, he anticipates that these investments could scale up to $100 billion or more by the end of 2025. This projection rests under the assumption of the funds’ maturity enhancement and their approval on eminent platforms like Morgan Stanley and Merrill Lynch.
Applying this benchmark, Hougan proposed that for the Spot Ethereum ETFs to align with the progress of the Bitcoin ETFs, they would need to rally an impressive $35 billion in assets. This feat, he estimated, could likely be achieved within an 18 month time span. Alongside this, Hougan gave a nod to the Grayscale Ethereum Trust (ETHE) rollover advantage. He pointed out that the Spot Ethereum ETFs would already be endowed with a substantial $10 billion in assets at the outset, facilitated by the conversion of ETHE into an ETF on the day of launch.
Taking these dynamics into account, Hougan elaborated that the Spot Ethereum ETFs would need to drum up an additional $25 billion in inflows, catapulting them into parity with the anticipated inflows Spot Bitcoin ETFs are projected to secure by year-end 2025. To strengthen his argument, he then presented data derived from international ETP markets. He argued that investor allocations to Bitcoin and Ethereum ETPs appeared to follow a similar pattern which stayed consistent to their respective market caps.
Turning towards the international markets as a point of reference, Hougan compared the distribution of assets under management (AuM) held by Bitcoin and Ethereum ETPs in Europe. The figures stood at €4,601 and €1,305 respectively, equating 78% and 22% of the consolidated funds available in both markets. This analogy extended to Canada, wherein Bitcoin and Ethereum ETPs had $4,942 CAD (77%) and $1,475 CAD (23%) respectively.
Utilizing Ethereum’s ETP market share in Canada as a guide, Hougan extrapolated that the US Spot Ethereum ETFs could possibly accumulate 22% of the US market. This reasoning led to Hougan revising down his forecast for net inflows into the Spot Ethereum ETFs, from $25 billion to $18 billion, post-exclusion of Grayscale’s holdings.
In addition, he further adjusted the expected net inflows to $15 billion, factoring in the consideration that a significant segment of inflows into US Spot Bitcoin ETFs emanate from carry trades. Upon excluding $10 billion of carry trade-associated AuM from the Bitcoin market, his estimates dimmed down from $100 billion to $90 billion for Bitcoin, and from $18 billion to $15 billion for the Spot Ethereum ETFs. With Ethereum price holding a robust $3,300, these adjusted figures certainly present a compelling scenario to keep a keen watch on, in the unfolding Cryptocurrency market landscape.
