Ethereum ETFs Could See Underwhelming Demand, Partly Due to Lack of Staking, Two Research Firms Predict

• Initial demand for the spot ether ETFs could be less than anticipated in part because the funds cannot stake their ETH, Wintermute and Kaiko predict.
• Wintermute sees roughly 62% less inflows over the next year than bitcoin ETFs have received in six months.

A couple of prominent crypto firms see a relatively muted debut from exchange-traded funds that hold Ethereum's ether (ETH).

Wintermute, a major market maker, sees ether ETFs collecting $4 billion, at most, of inflows from investors over the next year. That's below the $4.5 billion to $6.5 billion expected by most analysts – and that latter number is already roughly 62% less than the $17 billion that bitcoin ETFs have so far collected since they began trading in the U.S. six months ago.

Wintermute does, however, see ether's price gaining as much as 24% over the next 12 months, driven by those inflows.

The ETFs got regulators' final blessing Monday night, meaning issuers including BlackRock, Fidelity, Grayscale, VanEck, Franklin Templeton, Bitwise, 21Shares and Invesco can start offering the funds and they can begin trading Tuesday.

Read more: Ethereum ETFs Approved by SEC, Bringing Popular Funds to Second-Largest Cryptocurrency

U.S. regulators balked at issuers' request to allow ether ETFs to stake the crypto they own, which would've generated income that could've been shared with investors. "This loss reduces the competitiveness of ETH ETFs compared to direct holdings, where investors can still benefit from staking," Wintermute said in its report.

Research firm Kaiko shares a similar outlook based on previous Ethereum-focused launches.

"The launch of the futures based ETH ETFs in the U.S. late last year was met with underwhelming demand," Will Cai, head of indices at Kaiko, said in a report. "All eyes are on the spot ETFs' launch with high hopes on quick asset accumulation."

He said that regardless of the long-term trend, the price of ether will likely be "sensitive" to inflow numbers in the first days of trading.

According to data tracked by Kaiko, ether implied volatility increased sharply over the weekend, with contracts nearest to expiry (July 26) jumping to 67% from 59%.

"This suggests less conviction around the ETH launch, as traders are willing to pay higher premiums to hedge bets," the report said.

Issuers revealed their expected management fees in filings last week, clearing one of the last hurdles to getting final regulatory approval, with Grayscale's Ethereum Trust seeking to charge investors 2.5% while most other managers kept fees lower in the 0.15% to 0.25% range.

UPDATE (July 22, 2024, 21:19 UTC): Updates to note that the ETFs got final approval and can begin trading Tuesday.