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Ether ETF will be a 'monster success,' but not like bitcoin

While the Securities and Exchange Commission (SEC) has yet to allow money managers to issue spot ether exchange-traded funds (ETFs), the regulator has given the green light to the New York Stock Exchange (^NYA) and Nasdaq (^IXIC) to begin listing the funds. Bloomberg Intelligence ETF Research Analyst James Seyffart joins Morning Brief to discuss the significance of this move for ethereum (ETH-USD) and other altcoins.

Don't get hopeful, Seyffart says: altcoins don't have a shot at an exchange-traded fund anytime soon. The analyst explains that an ether ETF can exist today because it has a federally regulated futures market, like bitcoin (BTC-USD). These markets allow the SEC to monitor for fraud and manipulation.

Though it seemed unlikely for an ether ETF to come to pass, "political winds shift quickly," Seyffart notes, pointing to pro-crypto legislation moving through Congress with support from both Democrats and Republicans. Seyffart adds that ethereum demand is 30% of bitcoin's, though an ether ETF will still be a "monster success." The analyst explains that ethereum loses utility when placed inside an ETF.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

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This post was written by Gabriel Roy.

Video transcript

As we bring in James Seaford, who is the Bloomberg Intelligence ETF research analyst.

Great to have you here with us and thanks for hopping on this morning.

I mean, how significant is this for Ethereum?

And how many of the other perhaps alt coins out there could be watching this and saying, hey, we, we, we got a shot maybe.

Yeah, thanks for having me, Brad.

Um I don't think the other ones have that much of a shot in the near term.

Um Look, the Bitcoin ETF S got approved because we have a regulated, a federally regulated CME Bitcoin futures market.

And basically the SEC said we're not going to approve anything unless we have a market that we can surveil and that we can make sure there's no fraud and manipulation going on.

So that was basically what the DC circuit court that she was just talking about allowed for the Bitcoin ETF to get approval.

Ethereum is the only other digital app that has a federally regulated futures market that trades with enough size and enough frequency that theoretically the SEC could look for some sort of fraud and manipulation that doesn't really exist anywhere else that said things are moving very fast.

The political winds have shifted.

I mean, over just about a week ago, we didn't think this was going to happen, but everything really changed.

On Monday, there was a complete 180.

As far as we're concerned from DC.

And the SEC on this topic, we think that they were likely going to deny these things until sometime late last week.

James, what do you think one, what changed?

And two, what do you think demand is going to look like then for these potential uh spot uh E three ETF s?

Yeah, I mean, what changed is political winds shifted?

I mean, if you just look at what happened in DC, there's been, it's almost kind of insane to look at what's happened over the last couple of weeks, right?

You had Trump saying he was pro crypto.

You had the SAB 121 votes in Congress, which we don't need to get the weeds there.

But that's also a pro crypto um legislation and the Senate had a bunch of Democrats including um the majority leader, Chuck Schumer side with the cryptos uh vote and you had same similar things happened with fit 21 which is another crypto.

Bill.

Nancy Pelosi sided with that 71 different Democrats.

This was seemed to be a partisan decision, right?

It seemed to be Democrats versus Republicans.

Republicans were more pro, some dems were still pro crypto but for the most part that all shifted the minute that Trump basically said he was pro crypto.

And I think that there's been a lot of things changing in DC over the last few weeks as far as the ban goes.

Um If you look at Ethereum compared to Bitcoin, just the asset the market cap of Ethereum is around 30% of Bitcoin.

So if you take that into account, you translate that to ETF and you look at other ETF S around the world.

So the US is not the first one to have an Ethereum and Bitcoin ETF S the demand is going to be a lot less than what we saw for Bitcoin.

So we've seen about $13 billion of flows to the Bitcoin ETF since they launched on a net basis.

Um So if you take in that 30% I think there's going to be even less than that 30 30% of interest.

One, these things are not going to allow to stake, which is like a native yield that you would get in Ethereum.

There's a lot more utility you lose by just sticking Ethereum into an ETF and not allowing to use it.

So the demand will probably in our view be a little bit less than that 30% ratio.

So it depends who you talk to, but it will still be likely billions of dollars that we're expecting to go in here.

So it should be a monster success if and when we get, well, not if when we get those final approvals from, from the SEC for the issuers to actually launch these things, what is the timeline look like on that?

We know there, I mean, anyone who tells you, they know is lying or they're at the sec at this point as far as I'm concerned.

Um There, there's a huge gap, right?

So this can take as long as five months, there's examples of this taking five months before this gets through.

Um I think the Bitcoin ETF is probably the more apt analogy and that took about three months, a lot of the, the language and concerns and issues that had to be ironed out between the SEC on these risk disclosures, what these, these offering documents need to disclose to the people investing in them.

A lot of it's been ironed out with the futures, ETF and the ETF.

So the Bitcoin ETF took 90 days, I think it will probably be less than 90 days.

I think it could be weeks, but it also could be months.

So like we don't really know, my gut tells me if they went and basically truly did a 180 like we think late last week, that means they took three days to get these 19 before approvals after usually taking 240 days of work before they actually get this stuff done, they can accelerate this.

So I'm thinking it will be measured in weeks, pro multiple weeks, most likely at the very least, but it could be months.

There's no way to know.

So now with cryptocurrencies and, and specifically the majors Bitcoin and Ethereum having their ETF asset class moment, does the utilization value proposition or, or use case matter anymore?

Um, I think it does because it's still what matters is what's actually happening in the ecosystem of these assets.

Right.

It's the ETF are nice.

They're good, great for people who want financial exposure, particularly if they're looking to do things in like a tax advantage account, like an IRA or they have money in a brokerage platform and they want to make sure they get exposure.

What this is going to provide is financial exposure to the asset investment exposure if you want other, if there's other reasons why you would want access to these things, which there are, um there's plenty of people doing things with Ethereum in the in decentralized finance on these different decentralized platforms.

Um Same with Bitcoin, there's sovereign store of wealth.

You can kind of do what you want with it.

You can take your own custody of your own asset, which you can't really do with much else.

Those things all still exist.

But what this provides is it takes those assets from the defi world and puts them on the traditional financial rails in a very unique way.

So there's this thing going on right now with a lot of these asset managers, it's going both direct, right.

They're, they're taking these digital native assets and putting them in these wrappers of the traditional financial world.

But there's also examples of them taking traditional financial assets, things like money market funds and wrapping them and tokenizing them and putting them on the decentralized finance world.

So a lot of these asset managers, these banks are probably going to play a lot at this intersection between these two things.

Um And it's going to be fascinating to watch over the coming years.

Really great context and insight James severed.

Who is the Bloomberg Intelligence ETF research analyst, James.

Thanks so much for taking the time.

Thanks for having me.