Newly launched spot Ethereum (ETH) exchange-traded funds (ETFs) in the U.S. could see substantial net inflows ranging between $3.1 billion and $4.8 billion within their first five months of trading, according to analysts at K33 Research. These inflows could potentially absorb between 800,000 and 1.26 million ETH, accounting for approximately 0.7% to 1.05% of the circulating ether supply.

K33's analysis, led by Senior Analyst Vetle Lunde and DeFi analyst David Zimmerman, draws comparisons between market sizing for bitcoin and ether. Currently, 3.3% of ether’s circulating supply is held in investment vehicles, a figure that has been declining since the November 2021 crypto bull market peak. This mirrors a similar trend for bitcoin, which saw a drop to 4.1% in investment vehicles ahead of the spot Bitcoin ETF launch, though it has since grown to 5.6% of the circulating supply.

Globally, Ethereum exchange-traded products (ETPs) hold 28.2% of the assets under management (AUM) compared to their Bitcoin counterparts. In Canada and Europe, this figure is around 33%. U.S. Ethereum futures ETFs, however, account for only 5% of their Bitcoin counterparts. Lunde and Zimmerman attribute this discrepancy to the timing of the respective launches rather than a lack of investment demand.

“The thesis of futures ETFs being a nonrepresentative outlier is strengthened by CME’s ETH open interest, currently sitting at 22.9% of the size of BTC, while averaging a 35% share of BTC futures since its launch, indicative of significant institutional demand for ETH in the United States,” the analysts stated.

Applying these insights to the spot Bitcoin ETF's $14 billion net inflows since their launch in January, K33's estimates suggest that the new spot Ethereum ETFs could attract between 800,000 ETH and 1.26 million ETH in their initial trading period.

Optimism for Spot Ethereum ETFs

The U.S. Securities and Exchange Commission (SEC) approved 19b-4 forms for eight spot Ethereum ETFs from prominent firms such as BlackRock and Fidelity on May 23. However, these issuers still need their S-1 registration statements to become effective before trading can commence, a process that might take several weeks.

The analysts expressed confidence in BlackRock CEO Larry Fink's influence, suggesting that his involvement could bolster Ethereum’s market performance over the summer. “Such significant supply absorption will likely lead to price appreciation in ETH, per the strong relationship witnessed between BTC ETF flows and returns throughout the year,” they added.

Staking and Investor Demand

A noteworthy aspect of the new spot Ethereum ETFs is that they will not accrue staking reward yields upon launch. While some argue this could deter demand due to the opportunity cost, K33's analysts disagree. They point out that more than 98% of the European and Canadian ETH ETF AUM is in non-staked ETPs, indicating that a lack of staking is not a major deterrent for ETP investors.

In summary, the launch of spot Ethereum ETFs is poised to significantly impact the market, potentially absorbing a substantial amount of ETH and driving price appreciation. The confidence from leading investment firms and the demonstrated institutional demand suggest a strong future for these new financial products.