Why Investors Bet on Risky Ethereum ETFs?

I think that's a reasonable expectation, which means multiple billions of dollars. It's important to put in context that we've been spoiled by the spot Bitcoin ETFs. We're like 10, $13 billion, whatever. That's easy actually before those ETF launch, the fastest growing ETF of all time ever in the US in 30 years of ETFs gathered $5 billion in its first year. The Bitcoin ETFs have just spoiled us to get used to these absolutely massive numbers. So Even if Ethereum ETFs gather 2 or 3 or $4 billion in their first year, they will be historical successes from the perspective of the ETF industry, massive wins. And I think that's what we'll see. I do think these inflows set the stage for Ethereum to trade to a new all time high. I think it could easily push ETH price north of $5,000 if it's as successful as I suspect it will be. The reason for that is you have to remember that Ethereum has effectively no net new issuance. Right? When you look at the amount of Ethereum being issued and then subtract the burn from use, even at these relatively low levels of use in the Ethereum ecosystem, right now we're more or less flat, which means that this demand shock is coming into the market and there's no native supply to soak it up.

The launch of a spot Ethereum ETF may be an even bigger game changer than its Bitcoin counterpart, some analysts say.

I think last week was probably the most important week in crypto in the last, you know, 10 years.

Ethereum ETFs approved, we now have Ethereum ETFs.

It's here, it's happened, we've gotten a theorem ETF approved by the sec. Another crazy victory for crypto the the SEC approved applications for the listing of spot Ethereum funds. Whether the Ether ETF is good for.

Bitcoin or not, what impact could this ETF have on the price of Ethereum and on the broader cryptocurrency market? And most importantly, should we expect more crypto ETFs coming soon? And if so, which ones? We answered these questions in our latest interview with Matthew Hogan, the CIO of Bitwise, one of the firms that applied for their own spot ETH etf. What do you think is the significance of the approval of a spot etf? If we compare it to the approval of a Bitcoin of a spot Bitcoin ETF?

The Bitcoin ETFs were by far and away the most successful ETF launch of all time. They've pulled in about $13 billion of assets. They've contributed to a rising price of Bitcoin. They've sort of changed the landscape of what crypto is in America. The ETFs aren't going to be as big. Ethereum is of course a much smaller asset than Bitcoin and a little bit more complex to understand. But I still think they're going to be extremely important. I think these ETFs assuming they launch, could easily pull in more than $5 billion in their first year on the market. I think that would reshape the Ethereum market. I think it would contribute to Ethereum moving to new all time highs. And I also think the added regulatory clarity we get from having spot Ethereum ETFs in the market will help Ethereum continue to develop as an important new platform for DeFi, for NFTs, for stablecoins and other assets. So this would be a game changer. It would move us into a new era of Ethereum. And I think the ETFs themselves would be very successful if they in fact launch.

There is still one last step that needs to be taken which is the approval of these S1 forms, which probably would require some times before they get approved. So in order for our audience to understand how tough is this latest step, is there a chance that we are not going to get through it and how long this whole thing might take?

Yeah, great question. You know, we don't have our own internal forecast, but Bloomberg's ETF analysts have assigned a 99% probability that these funds will launch. So some of the experts in the world are very confident that we'll get through this other process and we should. The difference between what the sec approved the first time 19 before and what it's looking at now with the S1s is the 19 before is sort of a merit based document. Is the market mature enough to support ETFs and they can decide yes or no. The S1 is a disclosure based document. Can you adequately describe the risks of investing in Ethereum through an ETF so that someone can, you know, appropriately understand those things? That's not a sort of yes, no question. It's more of an iterative process where you go back and forth with the SEC to make sure they're comfortable and you're comfortable with describing those risks. So, you know, most experts think we should get to launch. As far as timing historically, when you look at this S1 back and forth process, it takes anywhere from a few weeks to a few months.

The Spot Bitcoin ETF was one of the most successful ETFs if not the most successful ETF in history. Maybe something different is going to happen with Ethereum. As you also mentioned, the future Ethereum ETF was not very successful. It wasn't met by a lot of demand. I also saw that you posted a poll on on Twitter on X where you are essentially assessing the interest that potentially that product is spot ETF is going to have among institutional investors. And a slight majority of the respondents to that poll said that they would hold just the Bitcoin, the spot Bitcoin etf. So don't you see the risk that this product is not going to get a lot of traction?

Yeah, I think you make great points. The example of the Ethereum futures ETFs which were really a dud, they didn't attract much interest at all, is a good cautionary tale. And as you mentioned, that Twitter poll shows a lot of people are comfortable owning just Bitcoin. Those are the reasons why I don't think these will be as big as the Bitcoin ETFs. Right. Which today holds something like $50 billion in assets. I think it will be substantially smaller than that. But even at a few billion dollars, I think that these will have a meaningful impact on the market. And I do believe there is that kind of interest because the investors that Bitwise talks to every day, and we do 20,000 meetings a year with professional investors, there's a substantial number of them that are interested in Ethereum. Now I do think one little nuance, you know, the Bitcoin ETFs boomed right out of the gate. I think the ETH ETFs could be a slower burn. I think there's more education around Ethereum how it's different from Bitcoin, the value of diversification, the different use cases than there is around the first ever crypto etf. So even though I'm optimistic that we'll get billion dollars of flows, they might build over time and not have the same day one spike. But I do feel confident that there is demand for this asset. The Ethereum ecosystem is very interesting. It's going after different use cases than Bitcoin and it's an attractive market. So ultimately I think it'll pull in billions of dollars, but it could take longer than the Bitcoin etf.

We know that this spot ETF do not include rather important parts of the value proposition of eth, which is staking this additional value proposition which allow people to earn yields on eth. So what do you think about that? Don't you think that is a big minus for this product?

Yes. Yeah, I do. You know, look, every product wrapper comes with its own risks. If you hold ETH directly, maybe through a centralized exchange and you stake it, you're taking on security risk in exchange for that extra yield that you get from staking it. If you hold it directly in a self sovereign format and staking it, you're taking on personal security, hygiene risks and other risks to do that. And it's inconvenient. The ETF will be, assuming it launches, extremely convenient. You'll be able to buy it in your brokerage account, it will be extremely low cost, but you'll be forfeiting this yield. Does that mean it's right for everyone? Absolutely not. If you're deeply crypto native and you're comfortable in these other ecosystems, you should do it yourself because you can access that yield. But there are many investors who don't feel comfortable doing it themselves and for them the ETF will be a good choice. But it's absolutely, you're absolutely right. It makes the ETF less attractive than holding ETH yourself and staking it if you're comfortable taking on those risks.

A lot of institutions were sort of looking into Bitcoin for a long time. They knew what it was, they knew about. The main narrative of digital gold, which is very simple, very straightforward with Ethereum, is a little bit more complicated because there are different sort of competing narratives and the pitches that could potentially be proposed to the institutional investors. So looking a bit into the discussion that is happening on X, a few analysts point out to four main sort of narratives embodying the value of Ethereum, which is first, digital payo, second, Internet bond, third, programmable money, and finally tokenization platform. So I'm not sure whether you think any of those should be the predominant one or if all four would somehow be sold to institutional investors.

Yeah, that's a great question. You know, I think, I think of those four, programmable money speaks the most to me. You know, I find that the, the best way to describe ETH is even though it's not a perfect analogy to point to something like Apple's App Store and say it's a global decentralized computer that you can build applications on top of. And some of these applications are real killer apps, things like stablecoins, things like DeFi, things like NFTs, things like tokenization, all of those only exist because the Ethereum ecosystem is able to support them. And I think that idea of this platform, that killer applications exist on top of that are reinventing finance, I think that's the narrative that works.

I saw some experts, some Ethereum fans that were more focused on the tokenization platform than to the programmable money one because of this narrative that is gained quite a lot of popularity, which is about tokenizing everything and having Ethereum being the main platform where this is happening.

Yeah, I think that's a very valid narrative. The issue is the public's conception of tokenization is really around taking things like funds and stocks and having them trade on Ethereum rather than on existing national platforms. That's sort of the modern general consensus. And my view is that that is many years away. If we talk about tokenization, of the idea of taking anything and making it liquid, taking dollars and making it liquid, then I think that's a valid narrative. But I worry that when you say tokenization, what people think of is BlackRock's money market fund and I just think that that's a, that's probably a next cycle mainstream event. And in the meantime there are real killer apps today again, stablecoins, DeFi, NFTs, etc. That have millions of users today. And so that's why I sort of, I worry a little bit about leaning too much into tokenization because I think, I think it's still, you know, years off from a mainstream perspective.

What people are saying is that the US financial authorities are get. Are kind of changing their attitude towards crypto and this event is the proof of that. Is this event such a breakthrough moment from, from the point of view of regulation?

I do think it's a breakthrough moment. I think what happened last week in the U.S. we had, we had this event around the spot ETF. We had the U.S. congress passed the first ever piece of primary pro crypto legislation repealing an accounting rule from the SEC called SAB 121. We had the US house in a bipartisan fashion, you know, both political parties voting to support comprehensive crypto legislation. That's a complete 180 from where we were even two weeks ago when the executive branch under President Biden was threatening to veto the first piece of pro crypto legislation. All of a sudden crypto has become sort of the only thing that there is a bipartisan consensus on in America. And I really think it is a complete sea change. The industry has been marching forward with both of its hands tied behind its back. By this lack of regulatory clarity and what has been a broad based regulatory assault on crypto over the last four years, and it appears years that that assault is over and we're shifting to having a tailwind. And I really think it's hard to overstate the importance of this change. I think it's, I think it's night and day. I think it's a 180. I think it's going to unleash the mainstream applications of crypto. And yeah, I think last week was probably the most important week in crypto in the last, you know, 10 years, maybe nine years maybe since the Ethereum's launch.

Yeah. And actually I wanted to ask you what you think about potential new spot ETFs, spot crypto ETFs appearing in the future. When will a Solana spot ETF be approved? Do you see it coming anytime soon?

Yeah, look, I think we're going to get there. I think we're in the ETF era of crypto. But there is a pretty big dividing line between Bitcoin and Ethereum and everything else, which is we had regulated futures contracts trading on a national futures exchange on the CME for Bitcoin and Ethereum. And that gives regulators a lot of confidence that the underlying market is not subject to market manipulation. We don't have that on Solana. So even if we get comfort around its security status, we still have a difference between Bitcoin and Ethereum that makes it more challenging. Ultimately, I think we're going to get spot ETFs on a wide array of crypto assets. I think that can happen over the next couple of years. But my guess is what we're going to see first is something like comprehensive crypto legislation that elevates exchanges like Coinbase to a new level of regulatory oversight that gives the SEC comfort that all of these assets that are trading are ETF eligible. So I don't know that we're going to continue to get this one or two ETF approach. I think we may, you know, work with these for a while, see some legislative developments and then get a lot of ETFs. But we're closer today than we were, you know, last week. I do think this is an important step, but I wouldn't, I wouldn't extend the line to Solana too easily. There's some additional work that has to go on before we talk about that.

And just a follow up question on that. So you said that there is a marking line between Bitcoin, Ethereum and everything else. But for some reason people pick Solana up as the sort of next one. So is that just because Solana is very popular token that is being talked about a lot lately, or is there some sort of line separating Solana from all the rest that comes after it?

I think there are two factors, I think. One is that people like Solana and are excited about it and think it's a compelling investment thesis, so it would be nice to have an ETF on it. And the other is that people are pushing for regulated futures on Solana. At least that's a. That's a. That's a sort of thought bubble out there. But mostly I think it's that people want it. You know, it's. It's the third big asset, right, that people talk about when they talk about the most interesting assets in crypto. They go Bitcoin, Ethereum and then Solana. So I think it's an expression of desire rather than reason. But look, we're going to get there eventually. An ETF would work in Solana if it were allowed to launch, and it would. It would lower costs and raise security. I think we will get there, but I do think it'll take a little bit of time.

Thanks a lot for coming on our show. It was a very insightful conversation.

This has been really fun. Thanks for having me. And thanks for your work in the crypto ecosystem. It.