Buy the Rumor, Sell the News?

Spot ether exchange-traded funds (ETFs), which will allow investors to purchase the second most popular cryptocurrency similarly to stocks, are anticipated to begin trading in the U.S. next week.

The Securities and Exchange Commission (SEC) has approved filings from at least three issuers, with a total of eight ETFs expected to launch simultaneously.

In an interview, Saul (Shauli) Rejwan, managing partner at Masterkey VC, expressed confidence that the introduction of spot ether ETFs could drive Ethereum’s price to new all-time highs, reminiscent of past market trends.

Rejwan noted, “Interestingly, the main market driver isn’t meme coins or notable figures’ endorsements like those of Elon Musk or Larry Fink, but rather U.S. politics, which has pushed for regulations after years of resistance.”

Ethereum’s price rally gained momentum in June as the likelihood of the approval of ether funds became clearer. Rejwan attributed this surge to “increased accessibility and legitimacy,” which may draw in a wider array of investors. He also emphasized that market dynamics and overall economic conditions will significantly influence price changes.

Regarding potential market behavior, Rejwan recognized the possibility of a “buy the rumor, sell the news” scenario surrounding the launch of ether ETFs. He remarked, “Before May, Ethereum’s price hovered around $2,500, suggesting some news is already factored into the price.”

However, he believes that not all developments have been disclosed and anticipates more news as the presidential campaign progresses. “The Nakamoto stage event in Nashville later this month is one to watch,” he added.

Rejwan pointed out that market participants often price in expectations ahead of major events. “When the actual event occurs, some investors might take profits, resulting in short-term volatility. Nevertheless, the long-term impact of ether ETFs is likely to be beneficial due to the structural support they offer.”

In terms of comparing inflows, the recent launch of spot bitcoin ETFs in the U.S. has been highly successful, attracting approximately $16 billion in lifetime net inflows. By late June, these Bitcoin-tracking funds had amassed nearly $38 billion in assets. However, the holdings of Grayscale’s fund, which transformed its Bitcoin trust into an ETF, saw a decline of over a third.

Rejwan anticipates that post-approval inflows for Ethereum ETFs will differ from those of Bitcoin due to Ethereum’s distinct value propositions. While Ether has attained a status as a blue-chip asset, its ETFs may initially attract smaller inflows when compared to Bitcoin’s due to features like smart contracts and decentralized applications appealing to a different investor demographic. “Although the initial inflows might not mirror those of Bitcoin precisely, we expect strong interest from both institutional and retail investors,” he stated.

Lastly, Rejwan suggested that a successful launch of ether ETFs could open the door for additional crypto ETFs and related products. “Once regulatory and market frameworks are set for one major asset, introducing new products becomes more feasible,” he remarked. This development could create “a more diverse and robust market” for crypto-based ETFs, enhancing investor participation and further legitimizing the industry.