Ethereum co-founder: Potential approval of ETF will lead to supply crunch

Joseph Lubin, co-founder of Ethereum and CEO of blockchain technology company ConsenSys, said that the potential approval of a spot Ethereum ETF by the U.S. Securities and Exchange Commission (SEC) could lead to significant supply constraints of ether (ETH). This development is expected to be a "watershed" moment for Ethereum.

Joseph Lubin’s point of view

In an exclusive interview with DL News, Lubin predicted that the approval of a spot Ethereum ETF would trigger massive institutional demand. Considering that many institutions have already started their cryptocurrency investment journey through spot Bitcoin ETFs, Ethereum has naturally become an important asset for diversified investments next.

Lubin said: “Purchasing Ethereum through these ETFs will bring considerable natural accumulated demand.” But he also emphasized that the market situation for Ethereum will be significantly different from Bitcoin due to underlying supply dynamics.

In the context of creating an ETF, a key difference between Ethereum and Bitcoin is the availability of the asset. On-chain data on the Ethereum network shows that more than 27% of all ether is already staked across different protocols. These funds are locked in contracts that support the security and operation of the network, so they are not easily traded on the market.

Lubin noted: “A significant amount of Ethereum is invested in core protocols, decentralized finance (DeFi) platforms or decentralized autonomous organizations (DAOs).” This structural difference shows that ETF providers are able to purchase and use new ETF shares are allocated a limited number of Ether coins.

In August 2021, the Ethereum network implemented a transformative burning mechanism through the EIP 1559 proposal. This mechanism stipulates that a portion of Ether is permanently removed from circulation as transaction fees. This is designed to hedge against the growth of Ethereum’s supply, potentially increasing its scarcity in the long term.

As network activity grows, especially through ETFs that may further ignite new institutional interest in Ethereum, the burning mechanism introduced by EIP 1559 will gradually reduce the available supply of Ethereum, adding a new dimension to the issue of possible supply crunch. . Commenting on this change, Lubin said: "This may represent a profound turning point."

Ethereum Price Targets and Concerns

The approval of an Ethereum spot ETF could trigger significant effects in the market. Cryptocurrency analyst Miles Deutscher predicts that once an ETF for Ethereum is approved, it could replicate the massive price surge experienced after the Bitcoin ETF was approved.

Deutscher’s analysis suggested that Bitcoin’s price surged 75% in the 63 days after the spot ETF was approved. If an ETF for Ethereum (ETH) is approved and follows the same trend, the price of Ethereum could reach $6,446 on July 23, according to his prediction.

Cryptocurrency analyst Miles Deutscher’s opinion | Source: X

However, opinions among analysts are also divided. Vetle Lunde, senior analyst at K33 Research, made some challenging points about how Ethereum futures ETFs compare to Bitcoin futures ETFs. Lunde observed that before spot ETFs were approved, Ethereum futures ETFs attracted significantly less capital than Bitcoin futures ETFs.

He noted: “Since its launch, the futures-based ETH ETF has attracted cumulative inflows of $126 million, an amount roughly equivalent to the inflows into BITX over the past three days. Moreover, the futures-based ETH ETF’s total assets (AUM) Only the Bitcoin Futures ETF has 7.4% of AUM before spot approval.”

This shows that although the market has shown interest in the Ethereum ETF, the scale of funds it has attracted is smaller than that of the Bitcoin ETF, which may indicate a certain difficulty for the Ethereum ETF in replicating the success of the Bitcoin ETF.

At the same time, cryptocurrency analyst Vijay Boyapati expressed his concerns about the structural differences of ETFs, specifically pointing out that the ETF structure currently cannot implement the staking function. Boyapati said: “What needs to be noted is that even if the ETH ETF is approved, it will be far less representative of its underlying assets than the BTC ETF because the U.S. Securities and Exchange Commission (SEC) is likely to continue not to allow ETF applicants. Perform staking operations.” This suggests that the ETH ETF may not fully reflect the value growth brought by Ethereum staking.

This structural limitation may result in the ETF not fully capturing the potential appreciation in the price of Ethereum. As Alex Thorn, head of research at crypto financial services company Galaxy, highlighted, if an investor purchased $10,000 worth of ETH on the Ethereum merger date in September 2022 and held it without staking, it would be the same as Investors who purchase ETH and stake it to receive additional issuance, tips, and MEV earnings will see an 8% lower return. This illustrates how the lack of staking opportunities in ETH ETPs can have a significant negative impact on investors’ overall returns.

Conclusion:

As discussions and predictions about the potential approval of an Ethereum spot ETF continue to emerge, market participants are paying close attention to how this development will shape the future of Ethereum. Despite concerns about the ETF structure, supply dynamics and regulatory environment, it is undeniable that Ethereum, as an innovative crypto-asset, is gradually being recognized by the mainstream financial community for its potential in technology and socio-economic structures.

With the further integration of institutional investors and traditional financial markets, Ethereum may usher in new development opportunities and also face a series of new challenges. Regardless, the approval of the Ethereum ETF will undoubtedly be an important milestone in the history of cryptocurrency, and its impact on the market deserves our continued attention.

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