12 July 2024

Bitcoin has posted a neat recovery after last Friday’s crash and is up by 6% on the weekly. Altcoins have done better with Ethereum surging 9% with a few others (BNB, ADA, TRX etc.) posting double-digit gains. Better-than-expected US CPI inflation data along with strong Bitcoin ETF inflows have negated the fear of a Bitcoin dump by the US and Germany. The bulls (and the frogs) are showing their faces again.

With the altcoin market taking strong strides, the impact of Ethereum spot ETFs can be significant. In our Hot Take today, we dive into the same.

Before that, let us enlist the top-3 stories and macros of the week.

Top-3 stories of the week:

1

2

3

The newsletter is put together by Giottus Crypto Platform. You can read all the previous issues of Cryptogram here.

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WEEKLY MACROS

• Total crypto market cap - $2.11 trillion - UP  6.0%

• Bitcoin price - $57,015 - UP 4.9%

• The dollar index (DXY) - 104.46 - DOWN 0.5%

• Bitcoin Dominance - 54.49% -  DOWN 1.1%

• Crypto Fear and Greed Index - 25 - Market is in Extreme Fear

THE HOT TAKE

ETH ETF’s are likely to dictate bullish trends post July

Let us summarize the current crypto context in a few bullets.

• The market continues to experience a bull year, although it has been muted since March 2024

• Former US President Donald Trump is set to speak at the Bitcoin 2024 conference, reinforcing the "pro-crypto president" narrative.

• Meanwhile, the German government is nearing the end of its Bitcoin sales, with less than 10,000 BTC remaining.

• US CPI data came in above market expectations at 3% (against 3.1% expected).

• Ethereum spot ETFs are estimated to launch as soon as next week.

Are you bullish yet?

Today, we delve deeper into the anticipated ETF approvals for Ethereum and explore their potential implications.

Ethereum ETFs – An overview:

Much like Bitcoin ETFs, an Ethereum spot ETF is a financial product that mirrors the price of Ethereum, enabling investors to trade shares on traditional stock exchanges. On 23 May, the SEC approved exchange applications to list and trade ETH spot ETFs, paving the way for the approval of these funds. Prior to this, only Ethereum futures ETFs had been authorized for trading in the United States. A total of eight ETFs received approval.

This led to a strong shift in market sentiment

The Ethereum market exploded with optimism as the likelihood of a major positive development soared to 75%. Investors, with limited time to react, quickly piled into ETH and other key tokens. PEPE, the leading memecoin on Ethereum, skyrocketed by 80%, highlighting the fervour. 

Essential infrastructure projects also surged, with Lido's governance token (LDO) and Uniswap's token (UNI) both leaping 44%.

The potential approval of Ethereum ETFs next week could lead to a wave of bullish sentiment, tipping the scales decisively in Ethereum's favour.

An analysis of expected inflows reveals strong gains ahead

• JPMorgan Chase & Co. (NYSE:JPM) expects the launch of new spot Ethereum ETFs to attract $1 billion to $3 billion in net inflows for the rest of 2024.

• Matt Hougan, CIO of Bitwise, believes Ethereum ETFs could be a game-changer, potentially attracting a massive influx of capital. He predicts that within their first four months, Ethereum ETFs could rake in 25% to 50% of the inflows seen by Bitcoin ETFs during their initial trading period.

• Adding to the chorus of bullish predictions, Grayscale's research team estimates that ETH spot ETFs will capture approximately 25%-30% of the demand witnessed by their Bitcoin counterparts.

Based on the above consensus, while ETH ETFs will likely see less inflow than their BTC counterparts, we can safely assume a Bear, Bull, and Base case scenarios on the expected inflow in to ETFs. As of this Thursday, US Bitcoin spot ETFs have seen net cumulative inflows of more than $15.4 billion since they started trading on 11 Jan.

How does price react to the spot ETFs?

When demand for something (like Bitcoin) goes up and supply stays relatively the same, the price usually goes up. Since Bitcoin has a fixed supply, new demand from ETFs likely impacted its price.

We can also assume that about 75% of Bitcoin's recent price jump is directly because of money flowing into these new Bitcoin ETFs. In simpler terms, BTC ETFs have gobbled up a significant supply of BTC during price dips.

Based on this assumption:

• About $15.42 billion flowed into Bitcoin ETFs.

• This inflow is linked to a 25% increase in Bitcoin's price (from $46,646 on 11 Jan.)

• This means roughly every $1 billion going into Bitcoin ETFs pushes the price up by 1.6%

Applying similar model to ETH:

While Bitcoin ETFs have impacted Bitcoin's price, Ethereum might react even more strongly to similar inflows into Ethereum ETFs. Why?

1. Scarcity: Ethereum is scarcer than Bitcoin right now in terms of its total value available in the market (market cap).

2. Staking: A large chunk of Ethereum (27%) is "locked up" or staked, meaning there's less readily available to buy and sell. This can lead to bigger price swings.

3. Deflationary Pressure: Ethereum's supply is slowly shrinking, making it even scarcer.

The fully diluted value of Bitcoin currently stands at $1.21 trillion, while that for Ethereum currently stands at $376 billion. Based on this, we can assume that ETH is 3.2X more reactive, when compared to BTC, meaning that for the same inflow, ETH will move three times as much as BTC.

This could mean that every billion dollars in net inflows could move ETH by +5.12%.

Factoring this, the following scenarios are possible

A 30% increase in Ethereum’s price is imminent even without the market’s bullish bias. In conjunction with the market and Bitcoin’s performance, we believe that Ethereum is poised for even further gains this year.

Key takeaway

While Bitcoin has dominated the recent market upswing, leaving most altcoins behind, this trend appears poised for a reversal. The current undervaluation of altcoins relative to Bitcoin suggests that a rotation into altcoins, often termed "Altseason," could be imminent.

This anticipated shift in market focus aligns perfectly with the bullish sentiment surrounding Ethereum, which, as a leading altcoin, stands to benefit significantly from such a rotation. Investors are likely to seek out altcoins like Ethereum with strong fundamentals and potential for growth, making this an opportune time for Ethereum to flourish.

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If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.