Coinbase Research On Friday, it released a new report suggesting that the odds of approval for a U.S. Spot Ethereum ETF are higher than current market prices indicate.
what happened: According to research, prediction market platforms Polymarket The company estimates a 16% chance of approval by May 31, 2024. Grayscale Ethereum Trust (OTC:ETHE) is trading at a 24% discount to its net asset value (NAV).
However, Coinbase believes the chance of approval is closer to 30-40%.
david hanCoinbase research analysts nevertheless stated: Ethereum(CRYPTO: ETH) has underperformed since the beginning of the year, but its long-term position remains solid.
“We think Ethereum has the potential for a surprise rally late in the cycle,” Han said.
The approval of the Spot Bitcoin ETF in the US has significantly strengthened Bitcoin’s store of value story and status as a macro asset.
Han notes that similar approval for Ethereum could enable new capital inflows, especially given the regulatory clarity that ETFs provide.
“The potential approval of a Spot ETH ETF removes the hurdle and opens up ETH to the same capital pool that only BTC currently enjoys,” Han explains.
However, the report also acknowledges challenges.
Ethereum benefits from both the “store of value” and “technology token” narratives, but competition from other layer 1s such as Solana (CRYPTO: SOL) and the growth of Ethereum Layer 2 (L2) will impact its value generation mechanism.
Han further added, “Despite these challenges, Ethereum's unique advantages, such as the maturity of its developer ecosystem and the utility of ETH as DeFi collateral, set it apart from other smart contract networks. ” he added.
This study highlights that approval of a spot ETH ETF is a matter of “when, not if.”
Han said, “The main rationale used to approve the spot BTC ETF applies equally to the spot ETH ETF. The correlation between CME futures products and spot exchange rates is sufficiently high.”
Also read: Solana Meme Coin Platform Pump.Fun exploited for $1.9 million, promises to repay users
why is it important: Polymarket currently estimates the probability of approval at 14%; coinbase (NASDAQ:COIN) claims the odds are significantly higher at 30-40%.
Han believes the current tough regulatory environment and the SEC's silence on issuers are contributing to the uncertainty.
“Even if the initial deadline of May 23, 2024 is denied, that decision could be overturned by litigation,” he says.
The report also covers the impact of alternative L1s on Ethereum.
For example, Solana has grown its decentralized exchange (DEX) volume share from 2% to 21% over the past year.
However, stablecoin issuance remains largely dominated by Ethereum, demonstrating its continued trust among large capital holders.
Furthermore, Ethereum's ability to innovate within decentralization is highlighted. Han said, “Ethereum enabled dynamic transaction burn, moved to proof-of-stake, and created his blob storage for L2 scaling, all in a short period of time. ” states.
As the Ethereum community continues to innovate, the report concludes that Ethereum's long-term strengths, including its role in DeFi and the prevalence of Ethereum Virtual Machine (EVM), will maintain its dominance.
Han said: “The significance of a potential spot US ETH ETF cannot be underestimated. We believe the market may have underestimated the timing and probability of potential approval.”
what's next: Given these developments, market participants and investors should tune in to Benzinga's Future of Digital Assets event on November 19th. There, industry experts will discuss the latest trends and future prospects in the digital asset field.
Read next: Elon Musk's deepfake scam used to facilitate fraudulent crypto trading platform, Hong Kong financial regulator warns
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