Ethereum at $10,000? Here’s how the first spot ETH ETF could make it happen

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To mitigate high Ethereum workload and improve transaction confirmations, some suggested methods include:

As a researcher studying the potential impact of Ethereum‘s first spot Exchange-Traded Fund (ETF) approval on its price, I believe one possible explanation for Ethereum reaching $10,000 could be attributed to several key factors that may fuel a bullish outlook.

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The cryptocurrency market is abuzz with anticipation as Ethereum (ETH) takes center stage, with the upcoming debut of the first exchange-traded fund (ETF) based on ETH spot prices. Currently, Ethereum is valued at $3,447 as of July 2, representing a minimal decrease of 0.33% in the previous 24 hours.

On June 24th, Ethereum (ETH) reached its lowest point this month at $3,244. However, since then, there has been a notable recovery with a roughly 6% price increase. This significant price uptick in ETH indicates optimistic market expectations towards the upcoming Ethereum ETF launch.

As an analyst, I would rephrase that statement as follows: The SEC has announced that it will postpone the debut of Ethereum exchange-traded funds (ETFs) which were eagerly awaited by many investors.

The launch, originally scheduled for early July, has been delayed due to further feedback from the SEC on the S-1 forms of prospective issuers. These issuers now have until July 8 to submit revised forms, which could shift the launch date to mid-July or possibly beyond.

Unfortunately, we may need to postpone our over/under discussion until after the upcoming holiday. It seems the SEC took longer than expected to respond to people this week (although the changes were reportedly minimal), and next week is quiet due to the holiday on July 8th. The process will then resume and the launch is anticipated soon after that.

— Eric Balchunas (@EricBalchunas) June 28, 2024

As a researcher, I’ve found that this launch is going through a two-part approval procedure. The initial phase, which involved the approval of Form 19b-4, was successfully completed in May. Nevertheless, the deadlines for the S-1 forms, signifying the second stage, are yet to be set. Consequently, the issuers are left dependent on the SEC’s review schedule.

Let’s delve into the current state of the Ethereum ecosystem and recent market developments to gain insight into potential implications for the forthcoming Ethereum-based Exchange Traded Fund (ETF).

Ethereum ecosystem updates

Ethereum is abuzz with excitement as it gears up for the debut of its inaugural ETF backed by ETH. Vitalik Buterin, one of Ethereum’s co-founders, recently penned down a blog post outlining the latest advancements and objectives within the Ethereum community.

One significant goal for Ethereum is enhancing the speed at which transactions are confirmed. At present, Ethereum’s Layer 1 (L1) network processes confirmations in 5 to 20 seconds, a result of EIP-1559 and regular block times following the Merge update.

Although Buterin proposes modifications for achieving confirmation times as quick as milliseconds, current Ethereum network speeds are comparative to credit card processing. However, specific use cases demand instantaneous confirmations.

Ethereum’s present consensus mechanism, Gasper, utilizes a slot-and-epoch structure. Here, validators make decisions about the leading chain every 12 seconds, while it takes around 32 slots, or approximately 6.4 minutes, for all validators to submit their votes. The finality, which guarantees robust economic security, is attained following two epochs, equating to a total of 12.8 minutes. Nevertheless, this method is intricate and time-consuming.

Buterin’s proposed single-slot finality (SSF) simplifies and speeds up the process by finalizing each block individually before moving on to the next, rather than waiting for several slots and epochs. This method is similar to Tendermint consensus but maintains Ethereum’s “inactivity leak” mechanism, ensuring chain recovery if validators become inactive.

However, SSF requires validators to publish two messages every 12 seconds, presenting a challenge. Recent proposals like Orbit SSF suggest methods to mitigate this workload.

Currently, Ethereum is moving in the direction of prioritizing rollups as the main focus for its development plan. In simpler terms, while the primary layer (Layer 1 or L1) ensures security and maintains data accessibility, secondary layers like rollups on Layer 2 (L2) take care of the vast majority of transactions.

“Rollup technology provides the same level of security as Ethereum, yet it can handle larger transactions at faster speeds. However, some users desire confirmation times even swifter than the current range of 5 to 20 seconds.”

As a researcher studying methods to improve blockchain transaction confirmation times, I’ve come across an intriguing proposition: the implementation of rollup preconfirmations. In simpler terms, this approach involves a select group of validators providing quick endorsements for blocks, offering earlier confirmations to users. These preconfirmations later get published on Layer 1 (L1) to maintain security and finality.

The proposed preconfirmation approach leverages advanced Ethereum proposers to offer preconfirmations as a service. Users can pay an additional fee to ensure their transaction is included in the next block. If a proposer fails to fulfill their commitment, they face penalties. This mechanism can also apply to L2s, facilitating faster transaction confirmations.

Improving transaction confirmation speeds and streamlining consensus mechanisms could draw in more users and developers to Ethereum, leading to heightened demand for Ether. With the upcoming launch of a spot ETH Exchange-Traded Fund (ETF), these enhancements may boost investor confidence and contribute to a price increase for Ether.

Ethereum gas fees and total value locked (TVL) levels

With Ethereum’s upcoming debut of its first spotted ETH Exchange-Traded Fund (ETF), attention shifts to two essential components of its infrastructure: the issue of gas fees and the Total Value Locked (TVL) within it.

In simple terms, gas fees play a crucial role in the Ethereum network. They cover the expenses for processing transactions and executing smart contracts, while also rewarding those who secure the network by validating transactions (miners or validators).

In recent times, gas fees have experienced a notable decrease. As reported by Dune Analytics, the average gas fee on June 30th reached a low point of 3 Gwei, which is equivalent to approximately $0.14. This represents a significant shift from the previous year, where median gas prices hovered around 15 to 20 Gwei, with the highest recorded price reaching 83 Gwei on March 5th this year.

This week, Ethereum experienced its most affordable hourly average gas prices since November 2016, with nine out of the ten cheapest hours occurring within this timeframe.

— Conor (@jconorgrogan) June 30, 2024

Multiple elements played a role in this decrease. Experts point to heightened productivity in the foundational (Layer 1 or L1) market as a primary cause, fueled by surging Layer 2 (L2) engagement and the implementation of “blob transactions” via Ethereum Improvement Proposal (EIP)-4844, significantly improving Ethereum’s capacity to handle more transactions.

Reducing gas fees on Ethereum makes the platform more approachable for a larger user base, potentially leading to increased adoption. Additionally, affordable transactions costs can encourage engagement in areas such as decentralized finance (DeFi) and NFTs, which have been impeded by high fees in the past.

Currently, TVL (Total Value Locked) signifies the accumulated capital within Ethereum’s Decentralized Finance (DeFi) system, acting as a significant indicator of network vitality and activity levels. Nevertheless, Ethereum’s TVL has experienced a downturn in recent times. Having reached a high of $67 billion on June 6, it now stands at $59.45 billion based on the most recent information, representing a reduction of around 11.3%.

Ethereum at $10,000? Here’s how the first spot ETH ETF could make it happen

The downward trend occurs after previous gains this year, nonetheless falling significantly short of the $106 billion mark reached in November 2021 during Ethereum’s peak pricing.

As a crypto investor, I’ve noticed that the unpredictability of the broader market has shaken my confidence and likely that of many other investors as well.

As a researcher studying the Ethereum blockchain, I believe that reducing gas fees could be an effective solution to counteract the declining Total Value Locked (TVL) in decentralized finance (DeFi) applications. By making transactions on the Ethereum network more affordable, we could encourage more users and developers to engage with Ethereum-based projects. This increased activity would not only boost the utility of these applications but also strengthen their value proposition within the broader Ethereum ecosystem.

What to expect next?

As a crypto investor, I’d express it this way: Based on my understanding of the crypto and ETF market, I believe that Ethereum Exchange-Traded Products (ETPs) will draw in an impressive $15 billion in new investments during their initial 18-month period.

“ETPs based on Ethereum are projected to draw in approximately $15 billion in new investments during their initial 18-month period of operation.”

— Matt Hougan (@Matt_Hougan) June 26, 2024

This assessment is derived from the comparative market values of Bitcoin and Ethereum, as well as prevailing investment patterns in cryptocurrency Exchange-Traded Products (ETPs) in Europe and North America.

In these areas, Bitcoin exchange-traded products (ETPs) have a greater proportion of their assets devoted to Bitcoin compared to Ethereum ETPs, which is roughly consistent with their respective market capitalizations. According to Hougan’s prediction, Ethereum is expected to account for around 22% of the total U.S. market share, slightly less than its current 26% market cap representation.

As a crypto investor, I’d interpret Hougan’s explanation this way: Currently, U.S. investors have poured $56 billion into Bitcoin Exchange-Traded Products (ETPs). By the end of 2025, these investments are anticipated to surge, reaching an impressive $100 billion mark.

Based on Ethereum’s potential growth trajectory, it’s projected that Ethereum Exchange-Traded Products (ETPs) like ETHE would need around $35 billion in total assets to match Bitcoin’s market capitalization. Since ETHE is starting with $10 billion, the necessary inflow of funds would amount to roughly $25 billion.

According to Hougan’s analysis, Ethereum ETPs make up approximately 22-23% of the overall crypto Exchange Traded Product (ETP) market in Europe and Canada. This percentage is slightly less than Ethereum’s market capitalization proportion. By observing this consistency across different geographical markets, Hougan gains further confidence in his estimation.

After making necessary adjustments for anticipated decreased demand and eliminating carry-trade assets that impact Bitcoin ETFs, but not Ethereum ETFs, Hougan revised his net inflow projection to $18 billion, which he later reduced to $15 billion.

currently, there’s optimism among investors regarding the introduction of Ethereum ETFs. Andrey Stoychev, who leads prime brokerage at Nexo, is confident that Ethereum could hit $10,000 by year’s end. He attributes this potential growth to the anticipated impact of Ethereum ETFs in the U.S. and Asia, mirroring Bitcoin’s price surge following its own ETF launch.

If the anticipated inflow of funds actually occurs, Ethereum’s market value may expand significantly, which could boost its price.

When dealing with cryptocurrencies, keep in mind that there are always prospects and challenges involved. Exercise caution and make thoughtful trading decisions. Never risk more funds than you’re prepared to part with.

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2024-07-02 15:09