Kaiko Research has announced that the approval of spot Ethereum ETFs by regulatory bodies is a positive indicator for the digital asset's future, despite potential short-term volatility and Grayscale fund outflows. The firm emphasizes that this development dispels much regulatory uncertainty surrounding Ethereum's classification, thereby fostering its long-term growth.

SEC's Approval Sets a Precedent

Will Cai, Head of Indices at Kaiko, stated that the SEC's approval is a clear indication that Ethereum is treated as a commodity rather than a security. This perception is critical as it likely sets a precedent for the treatment of similar digital tokens in the U.S. market. However, Cai highlighted that while the approval is a significant step forward, the complete regulatory process requires further developments, such as the SEC's approval of S-1 orders.

Potential Short-Term Volatility

Kaiko predicts some potential short-term volatility, especially concerning Grayscale's Ethereum fund, ETHE. With $11 billion in assets under management, the fund might see significant outflows, which could exert downward pressure on Ethereum prices. Kaiko estimates about $110 million in average daily outflows from ETHE once it transitions to an ETF. This scenario mirrors the experience of Grayscale's Bitcoin fund, GBTC, which witnessed outflows amounting to 23% of its AUM during its first month of ETF trading.

Global Perspective: Hong Kong ETH ETFs

Kaiko also turned its focus to the global scene, particularly the underwhelming performance of Ethereum ETFs in Hong Kong. Since their inception in early May, these ETFs have recorded $4.4 million in net outflows, contributing to the uncertainty about how U.S. market developments might unfold. Additionally, the analysis of centralized exchange data reveals that Ethereum's market depth is currently about 42% below its average levels before the FTX collapse, and the U.S. market concentration has decreased from 50% to 40% since early 2023.

Despite these challenges, Kaiko remains optimistic about Ethereum's long-term growth prospects, emphasizing that the regulatory approval dispels much uncertainty surrounding the digital asset's classification. As the Ethereum ETF market continues to evolve, investors and market participants will closely monitor the impact on Ethereum's price and adoption.