Canada Approves World's First Ethereum ETF: Can Ethereum Take the Lead from Bitcoin in the Latter Half of the Bull Market?

According to CoinDesk, Canadian regulatory authorities recently approved three Ethereum ETFs in a single day—Purpose Investments, CI Global Asset Management, and Evolve ETFs have all received approval. These three Ethereum ETFs began Trading on the Toronto Stock Exchange (TSX) at 21:30 local time on April 20.

Introduction to Ethereum ETF

Purpose Investments Inc, after securing the first North American Bitcoin ETF, has taken another pioneering step by announcing the launch of the world's first Ethereum ETF—the first ETF to directly custody Ethereum. According to the Purpose Investments Inc website, the ETF currently offers investors three unit types: Canadian dollar hedged units (ETHH), Canadian dollar unhedged units (ETH.B), and US dollar units (ETHH.U).

初识以太坊ETF

(Purpose Investments Inc's Ethereum ETF, source: Purpose official website)

As of 12:00 Hong Kong time on April 21, 2021, the ETF's assets under management had reached 26.46 million Canadian dollars (approximately 21 million USD).

初识以太坊ETF

Meanwhile, real-time trading data from the Toronto Stock Exchange (TSX) (as of 13:00 Hong Kong time on April 21, 2021) shows that trading volumes for ETHH, ETH.B, and ETHH.U reached 437,000 Canadian dollars, 272,000 Canadian dollars, and 135,000 Canadian dollars respectively.

Although the first-day trading data was unremarkable, Purpose founder and CEO Som Seif expressed optimism about Ethereum and the Ethereum ETF's prospects: "While Bitcoin often receives a lot of attention because it was the first major cryptocurrency, Ethereum and the Ethereum ecosystem represent one of the most exciting new technology visions in today's society."

（灰度旗下ETHE二级市场溢价率，来源OKLink）

(Grayscale's ETHE secondary market premium rate, source: OKLink)

As a result, Grayscale's ETHE secondary market premium rate turned positive again today, increasing nearly 10 percentage points within 24 hours. Another noteworthy point is that compared to ETHE, the three newly launched Ethereum ETFs not only have inherent advantages in liquidity but also offer competitive management fee rates. For example, Purpose Investments' management fee is 1%, only 50% of Grayscale's, while Evolve's Ethereum ETF management fee rate is 0.75%, waived until May 31, and CI Galaxy's management fee rate is directly as low as 0.40%. Under intense competition, Grayscale trust model transformation appears even more urgent.

In the spot market, Ethereum's performance was equally notable. According to OKX market data, Ethereum is currently at 2295 USDT, with a 24-hour increase approaching 8%, having recovered 50% of the decline since last Sunday.

（ETH/USDT价格走势，来源欧易OKX）

(ETH/USDT price trend, source: OKX)

What Impact Will This Have on Ethereum?

Most obviously, after Canada approved three Ethereum ETFs, it significantly reduced the learning and operational costs for traditional financial market investors regarding crypto assets. They don't need to personally create cryptocurrency wallets or worry about forgetting passwords or losing crypto assets due to various unexpected risks. Ethereum ETF packages a completely new investment product in a format familiar to traditional investors. They only need to understand from a macro perspective the problems Ethereum aims to solve (analogous to a listed company's business area), achievements already made (analogous to a listed company's past performance), and future plans (analogous to a listed company's development potential). This undoubtedly greatly lowers the investment threshold and will objectively promote traditional investor funds flowing into Ethereum.

Steve Kurz, head of asset management at Galaxy Digital, stated: "The CI Galaxy Ethereum ETF provides investors with a simple pathway to benefit from the explosive growth of decentralized applications built on Ethereum." "Similar to Bitcoin, investors will now be able to trade Ethereum as simply as buying stocks through a bank or broker."

Regarding the potential price Ethereum might reach in this bull market, Wall Street professional trader Scott Melker gave an optimistic prediction: "Ethereum could reach a target price of $10,000 by the end of 2021. Ethereum's 'enormous upside potential' could make Bitcoin pale in comparison this year."

From the ETH to BTC exchange rate perspective, it also seems to support Scott's view. According to OKX market data, since September 2019, the ETH/BTC trend has had fluctuations, but overall, it has maintained an oscillating upward trajectory. The ETH/BTC exchange rate has risen from 0.016 in early September 2019 to the current 0.042.

（ETH/BTC汇率，来源欧易OKX）

(ETH/BTC exchange rate, source: OKX)

How to Accurately Value Ethereum's Future?

This is certainly a topic with diverse viewpoints, but we can still return to ETH's inherent attributes to make a rough estimation. First is ETH's asset payment attribute. Currently, DeFi is flourishing, and ETH is the primary native asset supporting DeFi. It serves as minimized trust collateral for lending and is also the main funding source for applications built on the Ethereum network. Therefore, supply and demand relationships are the core factor.

如何为以太坊的未来准确估值？

According to DEFI PULSE data, the amount of ETH currently locked in DeFi protocols has reached 11 million, valued at over 25.1 billion USD at current prices. As the representative of second-generation crypto assets, ETH plays multiple roles on the Ethereum network. Users deploying smart contracts on the Ethereum network, providing liquidity for DeFi applications, or trading on DEXs all need to pay ETH as network usage fees. This trend is clearly continuing strongly, with no signs of deceleration or exhaustion.

Next is ETH as a consumption product. Ethereum network operation离不开 ETH. Every transaction on the network generates certain costs, and these costs are priced in ETH. These transaction fees, or network revenue, are distributed to miners. As network demand increases, fees correspondingly increase—this is the Gas fee surge we've commonly seen in the past half year. Different transactions compete with each other, and traders with higher requirements for transaction timeliness will raise prices to obtain priority for early block packaging.

Some people believe that ETH as a simple transaction medium asset, investors might seek to minimize their ETH holdings, only keeping what's needed for payment services. In other words, ETH will be viewed as working capital use, because investors might seek to maximize reduction of their operating capital, so ETH circulation velocity will increase. According to the exchange formula M=PQ/V, its value will decrease. In other words, this view believes that continuous selling pressure will cause ETH price to decline.

However, Ethereum is planning to implement a proposal named EIP-1559, proposing to burn ETH used for paying transaction fees. The importance of this lies in transforming ETH from a transaction medium asset to a consumption product. ETH will be more like Gas fuel rather than currency.

If the EIP-1559 proposal is implemented, it will also establish ETH's position as Ethereum's native economic unit. The burning method mentioned in EIP-1559 can also be viewed as a deflation mechanism. If ETH burning volume exceeds issuance volume, it enters a deflation state, which is clearly beneficial for promoting ETH price.

Additionally, we can substantiate the above speculation from active addresses. Daily active addresses are an effective representation of network growth. Metcalfe's law states that a network's value is proportional to the square of the number of users. This law was previously used to evaluate Facebook's value.

如何为以太坊的未来准确估值？

From OKLink data, we can see that Ethereum currently has nearly 800,000 daily active addresses, showing significant growth over the past year, reaching the highest level of the previous bull market.

As the top two in the cryptocurrency world, compared to Bitcoin, Ethereum is still quite new—not only from its inception time, but also the Ethereum protocol is undergoing major upgrades. The currently progressing Ethereum 2.0 plan will help the Ethereum network consensus mechanism transition from PoW to PoS, which will greatly help alleviate current network congestion and high Gas fee issues. At that time, important technical upgrades such as Casper consensus, sharding, and eWASM virtual machine, beyond giving Ethereum higher performance and better scalability, will also give the market greater imagination space.

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