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The long-awaited arrival of spot Ethereum exchange-traded products (ETPs) could trigger a significant inflow of capital, according to Matt Hougan, Chief Investment Officer at Bitwise Asset Management.
What Happened: In a blog, Hougan argues that spot Ethereum ETPs are likely to attract $15 billion in net inflows within their first 18 months.
Hougan’s forecast is based on a comparative analysis of the market capitalizations of Bitcoin and Ethereum.
“Absent any other information, I'd expect investors to allocate to Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) ETPs roughly in proportion to their market capitalizations,” he explained.
Bitcoin currently holds a market cap of $1.266 trillion, accounting for 74% of the combined market, while Ethereum's market cap stands at $432 billion, making up 26% of the total.
In the U.S., investors have about $56 billion invested in spot Bitcoin ETPs, a figure Hougan expects to grow to $100 billion by the end of 2025.
Using this projection as a reference, Hougan estimates that spot Ethereum ETPs would need to attract $35 billion to reach parity with Bitcoin, a process he believes will take approximately 18 months.
However, considering the Grayscale Ethereum Trust's (OTC:ETHE) expected conversion to an ETP, which would bring $10 billion in assets on launch day, the net inflow estimate is adjusted to $25 billion.
Hougan further refined this estimate by looking at the performance of Bitcoin and Ethereum ETPs in Europe and Canada.
In both regions, Ethereum ETPs account for about 22-23% of the total AUM, slightly below their market cap proportion.
Applying this metric to the U.S. market lowers the expected net inflows for Ethereum ETPs to $18 billion, excluding the Grayscale assets.
Also Read: SEC Chair Gensler Says Ethereum ETF Review ‘Going Smoothly’
Why It Matters: Additionally, Hougan considered the role of the carry trade in Bitcoin ETP flows.
“A significant fraction of U.S. Bitcoin ETP flows are related to the carry trade,” he noted.
Since the Ethereum ETP carry trade isn't currently profitable for institutions, he adjusted his estimate by removing the $10 billion in carry-trade-related AUM from Bitcoin ETPs, resulting in a revised net inflow estimate of $15 billion for Ethereum ETPs.
Meanwhile, Matthew Sigel, head of digital assets research at VanEck, has indicated that his firm plans to be highly competitive in the Ethereum ETF space.
“VanEck aims to be a leader on crypto ETF fees even if it means we lose money at the outset,” Sigel said.
He further added, “The plan is to make it up on volume; in this case, decentralized finance volume.”
This aggressive fee strategy by VanEck could potentially accelerate adoption and inflows into Ethereum ETFs, aligning with Hougan’s bullish projection.
What’s Next: As the crypto landscape rapidly changes, events like Benzinga's Future of Digital Assets on Nov. 19 provide a crucial platform for industry leaders and investors to discuss these transformative trends.
Read Next: Congressman Matt Gaetz Introduces Bill To Allow Federal Tax Payments In Bitcoin
Image: Shutterstock
