Thomas Fahrer, co-founder of Apollo, a firm focused on Bitcoin adoption, has issued a stark warning regarding the potential market dynamics following the approval of spot Ethereum ETFs. As the market anticipates this new development, Fahrer suggests that the transition might not be smooth for Ethereum.
“The Grayscale Ethereum Trust launched in 2017 and accumulated most of its $9 billion dollars worth of ETH well before staking existed. These funds will be unlocked now. Expect a bloodbath. It will accelerate the ETH -> BTC Trade. Hold me to account if I’m wrong. But I doubt it,” Fahrer declared via social media platform X.
Spot Ethereum ETFs – A “Sell The News” Event?
The imminent approval of spot Ethereum ETFs, similar to earlier this year’s launch of spot Bitcoin ETFs, is expected to convert the $9 billion (approximately 2.94 million ETH) locked in Grayscale’s Ethereum Trust (ETHE) into one such ETF. Historical precedent with Bitcoin suggests potential volatility; after the approval of spot Bitcoin ETFs, Bitcoin experienced more than a 20% drop in value within 12 days amid significant sell-offs from similar conversions.
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One of the main reasons the spot BTC ETF approval turned out to be a “sell the news” event was Grayscale’s transition from an Ethereum Trust to a spot ETF. Until now, Grayscale’s Bitcoin Trust (GBTC) saw outflows of more than 50% of its BTC holdings. And the ETHE could be reinforced by the fact that ETH staking is a lucrative option to earn an additional yield.
Currently, Grayscale holds over $9 billion in locked Ethereum that cannot be sold or traded until the ETF is operational. Should the approval go through, this large amount of Ethereum will suddenly become liquid, potentially leading to substantial market sell-offs if initial demand does not meet the volume of outflows from Grayscale’s new ETF.
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Julio Moreno, head of research at CryptoQuant, highlighted a critical market indicator that could suggest the market has already begun to react. “Seems like the market has already priced the Ethereum spot ETF approval. Grayscale’s ETHE discount to ETH has significantly narrowed in the last few days. The same happened between GBTC and Bitcoin as the Bitcoin Spot ETF approval was nearing,” Moreno noted via X.
While the short-term impact might mirror the turbulent times seen during the Bitcoin ETF launch, the long-term implications for Ethereum could be different. Observers note that despite the initial downturns seen in Bitcoin’s valuation post-ETF, the introduction of a spot ETF was eventually beneficial, leading to greater market acceptance and a price surge.
“BTC rallied 75% in 63 days after the spot ETF was approved. If ETH follows the same trend (if approved), this would take it to $6,446 by July 23,” crypto analyst Miles Deutscher noted.
At press time, ETH traded at $3,676.
Featured image created with DALL·E, chart from TradingView.com