BlackRock has applied for an ETF for Ethereum. What this means for the price of ETH

Ethereum is lagging behind bitcoin in terms of growth. And the approval of an exchange-traded fund is influenced by additional factors. We break down how much traditional investors are interested in the second-largest cryptocurrency.

BlackRock, the world’s largest asset manager, filed an application on November 9 to register an exchange traded fund (ETF) to invest in the Ethereum network cryptocurrency (ETH). With the ability to directly track its underlying spot price. The price of ETH rose sharply when the news broke. And jumped almost 10% from $1,880 before consolidating above the $2k level.

This is not the first attempt to launch a spot ETF for Ethereum in the United States. For example, in September, Ark Invest and 21Shares filed a joint application for such a fund with the U.S. Securities and Exchange Commission (SEC). And later, Grayscale announced that it had applied to convert its own investment trust for Ethereum into a full-fledged ETF. Today, its trust is the world’s largest Ethereum investment product. And with almost $5 billion under management. But it was BlackRock’s application that triggered a jump in the ETH exchange rate. And which until then had been lagging behind bitcoin in terms of growth dynamics. And even more so from tokens Solana, Chainlink and other leading cryptocurrencies.

The immediate rise in the price of ETH is similar to bitcoin’s June rally. When BlackRock similarly applied to register a spot bitcoin ETF. Such ETFs offer investors a convenient way to invest in cryptocurrencies without having to buy directly from traditional cryptocurrency exchanges and sort out their own wallets. Buying shares of exchange-traded funds is a more familiar form for clients of management companies. And pension funds in the US, particularly those who are deterred by the technical complexities and security issues associated with buying a real asset.

ETH has other prospects for ETF approval

Even if approved by regulators, the actual launch of BlackRock’s Ethereum ETF could take up to several months at best. And with that, there is no guarantee that it will be approved in principle. The SEC has up to 240 days from the date of filing to decide whether to approve the product. And that could push the fund’s possible launch date to next fall. There’s also a key difference in the regulatory status of bitcoin and Ethereum in the U.S., and that could also cause additional delays.

If nearly all stakeholders, including the SEC itself, agree that bitcoin is not a security and does not fall under its jurisdiction. Ethereum’s prospects are less certain. SEC Chairman Gary Gensler has repeatedly dodged the question of interpreting ETH’s status as an asset.

This is not the only factor influencing the launch of an ETF for Ethereum. But the debate over its status could also possibly slow down BlackRock’s application. The SEC will probably want to observe how a spot ETF for bitcoin performs first. Before approving products for other cryptoassets.

Investor optimism is growing

Ethereum occupies a unique place in the world of cryptocurrencies because it acts as a means of accumulating value (like bitcoin). But at the same time, it historically has a higher potential for price growth. This hybrid model has found confirmation in recent years. When ETH was ahead of bitcoin in terms of growth dynamics. But lagged behind tokens such as SOL from Solana or BNB from Binance.

However, in 2023, the scenario has partly changed: the enthusiasm of traditional investors for the possible emergence of a spot bitcoin ETF. And probably made the first cryptocurrency more attractive to them. Ethereum has lagged far behind bitcoin in terms of price momentum. And the basic fundamentals of the network have not changed much over the year. Despite the fact that ETH is starting to grow following bitcoin. But its average monthly volatility is at its lowest level in the last five years.

At the same time, analysts give optimistic forecasts. Marcus Thielen, head of cryptocurrency market research and strategy at Matrixport, called the emergence of BlackRock’s ETF bid “a nuclear winter for anyone who doubted Ethereum.” Large investors, he believes, are already aiming to allocate to cryptocurrency funds.

Thielen noted that despite lagging behind bitcoin, market sentiment indicators show growing interest in ETH. And trades in crypto assets with higher beta coefficients can generate more profits.

The market happening is accompanied by an increase in the trading volume of “ETH”. And the growth of the funding rate in perpetual futures of both bitcoin. As well as ETH, which reflects the growing optimism among traders, our experts note.