Thomas Farrar, co-founder of Bitcoin adoption-focused firm Apollo, has issued a stern warning about market trends following the approval of a spot Ethereum ETF. As the market anticipates this new development, Farrar suggested the transition may not be smooth for Ethereum.
“Grayscale Ethereum Trust launched in 2017 and has accumulated most of $9B worth of ETH, long before staking existed. These funds will now be unlocked. Expect chaos. ETH -> BTC trading will accelerate. Hold me accountable if I'm wrong, but I don't think so,” Pfarrer declared on social media platform X.
Spot Ethereum ETF – A “Sell the News” Event?
Similar to the launch of the Spot Bitcoin ETF earlier this year, approval of the Spot Ethereum ETF is imminent, with $9 billion (approximately 2.94 million ETH) locked in Grayscale's Ethereum Trust (ETHE) set to be converted into such an ETF. Bitcoin's past precedent suggests potential volatility: Following the approval of the Spot Bitcoin ETF, Bitcoin experienced a drop in value of over 20% within 12 days due to a significant sell-off caused by a similar conversion.
One of the main reasons why the approval of the Spot BTC ETF was a “sell the news” event is Grayscale's move from the Ethereum Trust to a Spot ETF. To date, Grayscale's Bitcoin Trust (GBTC) has seen over 50% of its BTC holdings go out of circulation. ETH may also be bolstered by the fact that ETH staking is a lucrative option for earning additional yield.
Currently, Grayscale holds over $9 billion in locked Ethereum that cannot be sold or traded until the ETF is operational. If approval goes through, this large amount of Ethereum could suddenly become liquid, leading to a significant sell-off in the market if initial demand does not meet the outflows from Grayscale's new ETF.
Julio Moreno, head of research at CryptoQuant, highlighted key market indicators that suggest the market has already started to react: “It appears the market has already priced in the approval of an Ethereum Spot ETF. Grayscale's discount of ETHE to ETH has narrowed significantly in the past few days. The same happened between GBTC and Bitcoin as the approval of a Bitcoin Spot ETF draws closer,” Moreno noted via X.
While the short-term impact may reflect the turbulent period seen during the launch of the Bitcoin ETF, the long-term impact for Ethereum may be different. Observers point out that despite an initial drop in Bitcoin’s valuation post-ETF, the introduction of a spot ETF was ultimately beneficial, leading to greater market acceptance and a surge in prices.
“BTC has risen 75% in the 63 days since the spot ETF was approved. If ETH follows the same trend (if approved), it could reach $6,446 by July 23,” crypto analyst Miles Deutscher said.
At the time of writing, ETH is trading at $3,676.
Featured image created by DALL·E and charts taken from TradingView.com
