The recent approval of Bitcoin spot ETFs has opened new avenues for many novice investors eager to delve into the world of cryptocurrenciesFor many, Bitcoin represents an attractive asset class to diversify their investment portfoliosHowever, the impact of Ethereum’s spot ETF approval appears to be less pronounced, raising questions about the potential upside for this prominent digital asset.

When BlackRock introduced its Bitcoin spot ETF application, my outlook on Bitcoin was decidedly bullishAt that time, Bitcoin was valued around $25,000 and has since experienced a remarkable return of approximately 2.6 times its initial price, whereas Ethereum has shown a return of roughly 2.1 times over the same periodNotably, both assets have achieved a fourfold return since their respective price cycle lowsThus, it beckons the question: how much room for appreciation does an Ethereum ETF genuinely offer? Without a new approach that significantly enhances Ethereum's economic outlook, the potential for substantial gains seems quite limited.

On June 19, 2023, I expressed high confidence in BlackRock’s chances of securing 99.8% approval for its Bitcoin spot ETF, a piece of news that could potentially lead to hundreds of billions of dollars flowing into the market

Surprisingly, Bitcoin's price only increased by a modest 6%, falling short of expectationsThis indicates a complex sentiment in the market regarding Bitcoin, despite the influx of institutional interest.

Analyzing the financial flux, Bitcoin spot ETFs have accrued an impressive $50 billion in assets under management (AUM). Yet, when categorizing the net inflows since their inception, excluding pre-existing Grayscale Bitcoin Trust (GBTC) assets and considering swaps or futures trades, we arrive at a net inflow figure of only $14.5 billionThis number must be treated cautiously, as it incorporates delta-neutral flows which are inherently tied to arbitrage strategies involving futures and spot tradesIn particular, data from the Chicago Mercantile Exchange (CME) together with ETF holder analysis leads me to estimate that around $4.5 billion of this net flow stems from these arbitrage activities

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Furthermore, reputable holders such as BlockOne have converted substantial amounts of their Bitcoin holdings to the spot ETF format, accounting for an estimated additional $5 billionAfter adjusting for these activities, we can deduce the genuine net purchase volume of Bitcoin spot ETFs is approximately $5 billion.

When projecting this model onto Ethereum, Bloomberg’s ETF analyst Eric Balchunas suggests that Ethereum's flow might mimic around 10% of Bitcoin'sFrom this perspective, the actual net buying flow for Ethereum over a six-month timeframe might hover around $500 million, with reported net flows reaching $1.5 billionWhile Eric's analytics might not always provide precise results, they likely resonate with the general stance held amidst conventional financial institutions.

My estimation yields a far more optimistic figure of 15% for Ethereum's net flow compared to Bitcoin

Thus, taking the previously stated amount of $5 billion in net purchasing for Bitcoin and applying Ethereum’s market capitalization ratio (approximately 33% of Bitcoin) along with a half adjustment factor, we end up with a realistic net buying estimate for Ethereum at around $840 million alongside a reported net buying number of $2.52 billionSupporting this contention, the premium of ETHE (Grayscale's Ethereum futures ETF) appears less dramatic than that surrounding GBTC, leading me to conclude a more optimistic range could see actual net purchases around $1.5 billion with reported figures reaching $4.5 billion, indicating approximately 30% of Bitcoin's flow.

Nevertheless, even the optimistic prediction of $1.5 billion in actual net purchases for Ethereum’s spot ETF starkly contrasts with the existing $2.8 billion inflows into Ethereum derivatives, not accounting for pre-market spot anticipatory trading, which is driven by bullish market sentiment

This discrepancy suggests that the anticipated inflows into Ethereum's spot ETF may be underwhelming, as much of this financial activity appears to be baked into current market pricing already.

The aforementioned adjustment factor refers to the variation in liquidity attributed to different owner bases for ETFs, clarifying that Bitcoin often benefits more favorably than EthereumThis disparity likely stems from Bitcoin's macro asset status alongside institutional investors—hedge funds and sovereign wealth entities—facing stringent entry hurdlesEthereum, however, tends to attract more risk-friendly investors such as venture capitalists or cryptocurrency-centric funds that are less constrained by such barriersThe calculation of 50% for the adjustment factor emerges from the comparison of Bitcoin’s open interest (OI) and Ethereum’s relative market capitalization.

Analyzing CME data before the introduction of an Ethereum spot ETF reveals that OI in Ethereum was noticeably lower than that in Bitcoin, with OI constituting about 0.3% of Ethereum's supply compared to 0.6% for Bitcoin

Initially, I viewed this as an early indicator, yet it could also suggest a broader disinterest among traditional finance players in Ethereum's ETFWall Street traders often prefer Bitcoin spot ETFs, likely due to their first-hand access to critical informationIf Ethereum isn't receiving similar trading interest, it signals a lack of transparency regarding liquidity in the Ethereum market.

The inquiry on how $5 billion propelled Bitcoin from $40,000 to $65,000 warrants a nuanced response, for such feats cannot be achieved through single investments alone given the multitude of buyers in the spot marketBitcoin has attained recognition as an essential asset class globally and is held long-term by numerous institutions, including MicroStrategy and family offices, in stark contrast to Ethereum, which arguably attracts lesser institutional interest.

Prior to the emergence of Bitcoin spot ETFs, Bitcoin already hit its all-time high of $69,000, solidifying its market capitalization above $1.2 trillion

Markets abound with participants, many of whom were institutional holdersFor example, Coinbase manages $193 billion in crypto assets, with an impressive $100 billion emanating from institutional clientsBitgo reported an Asset Under Custody (AUC) of $60 billion in 2021, while Binance held upwards of $100 billionPost-half a year of implementing the Bitcoin spot ETF, it was managing 4% of the total Bitcoin supply—underscoring the depth of institutional interest designed to sustain market dynamics.

Considering long-term demand estimates for Bitcoin range between $40 billion and $130 billion, many cryptocurrency enthusiasts often underestimate the world’s capital, income levels, liquidity, and the subsequent influence on cryptocurrenciesOften, mainstream statistics focus on more traditional assets such as gold or real estate, leading to the misinterpretation of potential cryptocurrency investments

As investors navigate different circles across the globe, further realizations around the significant amount of dollars at play—potentially channeled into Bitcoin and other cryptocurrencies—becomes increasingly evident.

To illustrate further, let’s approximate demand on a broad scaleThe median income for a U.Shousehold is $105,000, and with about 124 million households in the country, it implies an annual total income of $13 trillionFactoring in that the U.Sconstitutes approximately 25% of global GDP, the worldwide income approximates $52 trillionGiven that the average cryptocurrency ownership rate globally rests around 10%, this equals about $5.2 trillionIf we assume crypto owners allocate 1% of their income yearly, $520 billion would funnel into BTC annually, equating to around $1.5 billion daily.

At the launching of Bitcoin spot ETFs, entities like MicroStrategy and Tether ended up acquiring billions in Bitcoin, notably with earlier stages representing lower purchase costs

Market sentiment deemed the approval of Bitcoin spot ETFs as a sign of potential profit-taking which led to significant short, mid, and long-term positions needing to be repurchasedCrucially, once the trading momentum for Bitcoin spot ETFs formed a robust upward trajectory, shorts needed to cover their positions—an extraordinary event occurred when open contracts diminished prior to the launch of Bitcoin ETFs.

On the contrary, the positioning around Ethereum’s spot ETF is decidedly differentCurrently, Ethereum prices have surged to approximately four times the pre-spot ETF launch lows, while Bitcoin sits at a modest 2.75 timesAdditionally, native crypto centralized exchanges have injected $2.1 billion into OI, edging closer to previous all-time highsThe market operates on principles of efficiencyAlso, many native cryptocurrency enthusiasts drew parallels with Bitcoin spot ETFs' success and aligned their beliefs with Ethereum's promising trajectory.

Contrarily, I perceive the loud expectations harbored towards Ethereum from native crypto consumers may be over-inflated, revealing a disconnect with the genuine inclination found in traditional financial markets

Such tendencies might lead to a psychological bias among aggressive investors while forgetting the paltry allocated acquisitions from major non-crypto capital groups, indicating significantly lesser interest surrounding Ethereum as a prime portfolio constituent.

One of the most common narratives in traditional finance posits Ethereum as a 'technology asset'—anchoring its essentiality in computing, Web3 apps, and decentralized financeThis narrative is appealing; it resonated with my own acquisitions during previous cycles, but ongoing trading realities present challenges in justification.

In cycles past, tangible revenue streams in DeFi or NFT contexts lent credibility to Ethereum's value proposition, likening it to a technological investmentHowever, the present cycle yields a stark contrast with decreased revenue output, many metrics indicating stagnant or negative growth

Ethereum essentially functions as a cash machine, generating an annualized revenue of $1.5 billion correlating to a staggering price-to-earnings ratio (P/E) of 300, and a deflated P/E factoring inflation yields negative returnsArticulating this valuation to family offices or macro fund managers poses a significant challenge.

Additionally, a significant drop in purported trading volumes in recent weeks was anticipated, attributed mainly to two factorsFirst, the unexpected approval of Ethereum spot ETFs limited the issuers' capacity to persuade major holders to convert their holdings into the spot ETF structure promptlySecondly, the allure for current holders to make conversions remains weak, owing to their potential loss of staking yields or DeFi returnsDespite this, it's notable that Ethereum's staking rate only stands at about 25%.

This leads to the essential question: does this imply Ethereum will plummet to zero? Certainly not; somewhere along the spectrum of value assessments, Ethereum can be recognized as a worthy investment

Should Bitcoin experience bullish trends nearing $100,000 by Q4 of 2024 or Q1 of 2025, there's the clear potential for Ethereum to break its all-time high priceHowever, the behavior of Ethereum may ultimately lag following positive Bitcoin momentumMoving forward, there are significant developments to keep an eye on, and one must have confidence that institutional players like BlackRock and Fink are diligently creating necessary components for financial infrastructure on the blockchain while tokenizing assets.

The extent of value creation Ethereum could realize, alongside the timing of such events, remains speculative at bestI anticipate that Ethereum's performance will continue to unfold dynamically against Bitcoin, projecting the near-year ratio between both assets to land somewhere between 0.035 and 0.06. While we wouldn't overly rely on a limited sample size, the observed yearly lower highs of Ethereum relative to Bitcoin shouldn't come as a surprise moving forward.