Ethereum ETFs have arrived
After initial approvals in May, nine Ethereum ETFs began trading on U.S. exchanges on Tuesday.
There’s never a dull moment on the blockchain. Here’s what you need to know this week:
Spot Ethereum ETFs began trading in the U.S. How the ETH ETFs compared to BTC ETFs on their first day of trading, and what analysts are expecting next.
A closer look at Polymarket. The popular crypto-powered app lets users wager on real-world events. Here’s how it works.
This week in numbers. The amount of BTC a British football club acquired, the total venture capital that crypto businesses raised in Q2, and more stats to know.
MARKET BYTES
Spot Ethereum ETFs crack $1 billion in trade volume on first day
Six months after spot bitcoin exchange-traded funds (ETFs) began trading in January to blockbuster success, nine similar products for Ethereum launched on Tuesday morning from institutions including BlackRock, Fidelity, and VanEck. (Coinbase is the custodian partner for eight of the nine approved ETH ETFs.)
By market close on Tuesday, the funds had already tallied more than $1 billion in trade volume, inclusive of both inflows and outflows, representing 23% of the trading volume seen by BTC ETFs on their first day, according to Bloomberg’s Eric Balchunas. Total net inflows on day one for the new ETH ETFs were $107 million (compared to $600 million for bitcoin ETFs on their debut).
ETH prices ticked downward slightly on Tuesday following the launch, from around $3,500 to around $3,400. Right after BTC ETFs debuted, by comparison, prices swung sharply downward as some traders took profits in a “buy the rumor, sell the news” strategy — before climbing in the subsequent weeks to an all-time high north of $73,000.
How much demand will there be for ETH ETFs, and can they help power crypto markets to new highs? Here’s what you need to know.
How do spot ETH ETFs work?
ETFs — which typically have low fees and track an asset like gold or a basket of assets like tech stocks — are hugely popular investment vehicles with more than $10 trillion under management worldwide.
Spot BTC and ETH ETFs both buy crypto and sell shares of it via conventional brokerages on traditional stock exchanges including Cboe, Nasdaq, and NYSE.
Almost all of the new ETH ETFs debuted with fees set at or below 0.25% — similar to the fees charged by BTC ETFs.
What’s the difference between buying shares of a spot ETH ETF and buying ether directly?
Spot ETH ETFs offer investors exposure to ether’s price movement — instead of owning ETH directly, buyers own shares that are backed by the ETH the fund purchases.
For certain investors, there’s a benefit to this arrangement: Because the spot ETFs trade on conventional exchanges, it’s easier for retirement accounts, hedge funds, and pension funds to gain exposure to ETH’s price movements.
It also makes it easier for traditional financial advisors to offer ETH to clients. Last fall, before the new BTC ETFs were approved, the founder of the Digital Assets Council of Financial Professionals noted that half of U.S. financial advisors held crypto themselves, but only 12% were recommending it to their clients. “The primary reason … is because there [wasn’t] an ETF,” he added.
But there are also advantages to buying ETH directly from an exchange like Coinbase. If you purchase your own ETH, you can use it in a huge variety of ways, from buying NFTs to experimenting with decentralized finance. You can also stake your ETH and earn rewards for helping to secure the Ethereum blockchain.
How well do analysts expect the ETH ETFs to perform?
While estimates vary, analysts are generally bullish. As a report from London-based digital assets firm Fineqia International noted, "Overall, market participants expect strong interest in ETH Spot ETFs and significant inflows in the first 3-6 months post-launch.”
Ethereum’s market cap of around $411 billion is about a third of BTC’s $1.3 trillion, so some analysts expect the performance of the ETFs to mirror that ratio. (Spot BTC ETFs as a class recently surpassed $16 billion in net inflows and $60 billion in assets under management.)
A forecast from algorithmic trading firm Wintermute suggests “one-year flows could range between $4.8 billion to $6.4 billion,” while Bloomberg Intelligence estimates that flows could amount “to roughly 20% of those notched by the Bitcoin funds.”
The bottom line…
While it will take time to know how much impact the ETH ETFs end up having, they got off to a strong start.
“It’s been an incredible reaction, to be honest,” Bitwise’s chief investment officer told Bloomberg about the ETH ETFs’ debut. “It’s exceeded my expectations.”
DEEP DIVE
What is Polymarket? The crypto-powered predictions market, explained
The 2024 U.S. election cycle has helped spur the growth of a major new crypto use-case: decentralized markets that allow users to make predictions on the outcomes of real-life events.
The biggest beneficiary of this trend is a four-year-old web3 app called Polymarket, which has emerged as a major election storyline of its own. So far this year, Polymarket users have wagered around $400 million on the outcome of sports games, pop culture happenings, and — especially — political events.
The growth has been rapid: Polymarket registered around $4 million in trading volume in December, compared to nearly $300 million over the past 28 days alone, according to Dune Analytics. The site registered a record $28 million in trading volume in a single day after President Biden pulled out of the 2024 race, as users made wagers about the shifting election landscape.
Last week, the company hired Nate Silver, the high-profile statistician and FiveThirtyEight founder, as an advisor. The app’s popularity has even spurred some news outlets to begin reporting Polymarket odds alongside traditional polling data for key questions, such as “Who will win the 2024 Presidential Election?”
Here’s what you need to know.
What is Polymarket?
Polymarket is a predictions marketplace that was founded in 2020, and has since received venture capital funding from investors including Peter Thiel and Vitalik Buterin.
It runs on the Polygon blockchain and allows participants to place wagers using the USDC stablecoin on a huge range of topics, from “How many times will Elon Musk tweet this week?” to “Which country will win the most medals at the Paris Olympics?”
Of the 10 most popular wagers on Tuesday by trading volume, nine were related to U.S. election outcomes. (The lone non-election bet was about when the Federal Reserve will begin to cut interest rates.)
Polymarket is currently unavailable to U.S. users, but the platform says it hopes to release a regulated U.S. product soon.
How does Polymarket work?
Polymarket operates similarly to other prediction markets, where users can buy “shares” in an event's outcome that range in price from zero to one dollar, with the cost of each share reflecting the odds of a given outcome.
For example, if it costs 60 cents a share to bet on the U.S. winning the most Olympic medals, that means the market has assigned a 60% chance of that outcome.
If a user’s selected outcome comes true, the “share price” of that wager rises to $1, allowing them to sell their shares and pocket the difference. If the outcome a user bets on doesn’t happen, their share price falls to zero and they lose their money.
Until any given outcome is confirmed, users can buy or sell more shares as the odds change.
How are centralized and decentralized prediction markets different?
Centralized prediction markets have long existed: Examples include the Hollywood Stock Exchange, which allows speculation on box office news, and the University of British Columbia’s Election Stock Market, which allows users to bet on election outcomes. (Several major centralized prediction markets were created as university research projects.)
As some market observers note, decentralized markets can potentially offer more efficiency, transparency, and insight into what the public is thinking. In much the same way that anyone can create and list a token on a decentralized exchange, anyone can create a wager on Polymarket. (Centralized markets generally decide which events can be bet on, since they’re responsible for providing the liquidity.)
As a web3 app, Polymarket is accessible to most people around the world who have a self-custody wallet and some USDC. Polymarket also currently charges no trading fees, which it can do in part because the platform runs on self-executing smart contracts. Users can also earn rewards for providing liquidity.
The bottom line…
Prediction markets are intended to harness the “wisdom of crowds” to explore questions that traditional polls can’t always answer around the likelihood of future events.
While prediction market participants can get projections right, they can also get things wrong. The people betting on real-world events aren’t necessarily any more informed than the general public and often rely on the same data as everyone else, making it hard to know how much insight you can extrapolate.
But at the very least, Polymarket and other prediction markets can provide a real-time measure of probabilities, as market participants see them, and the questions that are on their minds.
As Nate Silver told Axios recently, "Probabilities really matter when you're trying to make plans.”
NUMBERS TO KNOW
$3.2 billion
Total venture capital raised for crypto businesses in the second quarter of 2024, the highest amount for a three-month period since 2022, and up from $2.5 billion in the first quarter, according to Galaxy Research.
$4.5 million
The amount of money in bitcoin that British football club Real Bedford FC added to its treasury this week, bringing the total amount in bitcoin it holds to $5.37 million. The bitcoin will be used for club operating expenses, as well as facilities improvements and community initiatives.
20%
The amount that transactions on Ethereum Layer 2 networks have increased since the blockchain’s most recent upgrade in March. The upgrade, dubbed Dencun, was in part supposed to help Ethereum more efficiently process Layer 2 transactions.
10%
The percent of profits from Bitwise’s new Ethereum ETF (ETHW) that the crypto asset manager will donate to Ethereum developers. In a statement, Bitwise’s chief technology officer praised the open-source developers that contribute to ETH’s blockchain and said “every investor in ETHW wants Ethereum to continue to advance, and this donation program contributes to that goal.”
TOKEN TRIVIA
Which bitcoin ETF is currently the largest?
A
BlackRock’s IBIT
B
Grayscale’s GBTC
C
Fidelity’s FBTC
D
VanEck’s HODL
Find the answer below.
Trivia Answer
A
BlackRock’s IBIT
