A look at spot Ethereum ETF’s effects on buy and sell orders

Ethereum just saw the launch of its U.S. spot ETFs exactly ten years after its first ICO. This new ETF is a big deal for Proof-of-Stake blockchains, making them more accessible to mainstream investors and bringing more developers.

But it comes with a catch: it can’t stake, meaning investors miss out on the 3%-5% staking yield they’d get from holding Ethereum directly.

This regulatory block, plus the fact that Ethereum isn’t as widely understood as Bitcoin, might limit its short-term impact on the market, per SoSo Value.

When the Bitcoin Spot ETF hit the market, daily net inflows—basically, the new buying and selling activity—played a huge role in determining its price. The spot ETH ETF is expected to work the same way, but with a few differences.

Sell orders and the “migration effect”

Grayscale’s Ethereum Trust (ETHE) has much higher management fees than some competitors, leading to what’s called a “migration effect.” Investors may sell off ETHE shares to switch to cheaper options, causing a surge in sell orders. 

To ease this, Grayscale launched a low-fee Ethereum Mini Trust (ETH), which was given to existing ETHE investors, helping to offset some of the selling pressure. 

While sell orders are anticipated, SoSo says they might not be as dramatic as what was seen with Bitcoin. The discount on ETHE shares has narrowed significantly, making it less attractive for traders to cash out. 

As of late July, the discount is less than 1%, down from highs of 60%. This reduces the incentive for traders to sell off ETHE in favor of more profitable trades.

Bitcoin has always been marketed as “digital gold,” which is easy for most people to understand. Ethereum, however, is a bit more complex. Its supply isn’t fixed and is affected by factors like staking rewards and gas fee burns. 

Right now, Ethereum’s total supply is about 120 million, with a slight annual inflation rate. These make Ethereum less appealing to traditional investors who like straightforward, predictable assets.

Public interest also shows this difference. Google searches for Ethereum ETFs are much lower compared to Bitcoin ETFs. 

Big financial institutions like Fidelity and VanEck have also put less seed money into Ethereum ETFs, showing lower initial demand.

Lack of buy orders from crypto insiders

Crypto insiders usually buy ETFs for their portfolios, especially for assets like Bitcoin, which don’t offer staking rewards. But with Ethereum, these insiders lose out on staking yields when they hold ETFs instead of tokens. 

Ethereum operates on a Proof-of-Stake system, allowing holders to earn rewards, which ETFs can’t offer. This lack of yield makes Ethereum ETFs less attractive to crypto-savvy investors.

Despite the short-term challenges, the Ethereum Spot ETF’s approval is a big win for the industry. The ETF meets SEC standards for things like anti-manipulation, liquidity, and price transparency. 

Ethereum’s decentralized network, with over 4,000 nodes, prevents any single entity from controlling it. The ban on staking in the ETF also helps reduce the risk of market manipulation. 

Plus, Ether’s strong trading infrastructure and its futures on the Chicago Mercantile Exchange (CME) give investors reliable hedging options and clearer price predictions.