Ethereum's fate hangs in the balance: will we get spot Ether ETFs?

Ethereum (ETH), the second-largest cryptocurrency by market capitalisation, finds itself in a struggle to match the rapid ascent of its dominant counterpart, Bitcoin (BTC). While Bitcoin surged by approximately 65% in the first quarter of this year, Ether showed a more modest increase of around 53%. Despite this, Ether remains significantly below its all-time high of $4,867.60, which reached in November 2021, with its current price hovering around $3,300. Even a recent technical upgrade to the Ethereum blockchain, aimed at reducing transaction fees, failed to generate significant excitement outside of the crypto community.

Although Ethereum was designed to be a better version of Bitcoin, BTC still has that first-mover advantage and has never let it slip. Ethereum's functionality far exceeds Bitcoin's. It's used as the foundation of decentralised applications, DeFi, staking systems, smart contracts, NFTs, layer-2 solutions and more. Bitcoin, in contrast, is much less flexible and scalable than Ethereum. So, why has ETH always lagged behind in second place?

Ethereum still hasn't broken the mainstream 

Despite its technical advantages, the lack of mainstream recognition continues to hinder Etherum's performance. According to surveys of the cryptocurrency market, 88% of respondents had heard of Bitcoin, but only 43% were familiar with Ethereum. Bitcoin remains the most well-known cryptocurrency by a wide margin and is practically synonymous with the entire crypto sector. Generally speaking, the aptly named 'altcoins', as in alternatives to Bitcoin, also tend to follow BTC's price movements.

Ethereum is far from dead, and adoption is increasing. More than 230 million Ethereum holders were recorded in 2024, which represents an 18% increase over the last year. However, in terms of mainstream awareness and media coverage, Ethereum still remains a niche product, lingering in the domain of tech-savvy enthusiasts. As such, Ethereum simply can't generate the level of public participation from retail traders or institutional investors that Bitcoin can.

Regulatory uncertainty surrounds spot Ethereum ETFs

One can't talk about the recent breakout success of Bitcoin and its new all-time highs without the role of spot Bitcoin exchange-traded funds (ETFs). These recently approved financial instruments allowed institutional investors to easily participate in the crypto market with limited exposure to the most volatile aspects of the digital asset class. Spot Bitcoin ETFs were a huge boon for BTC prices, generating $6.7 billion in inflows in less than two months and propelling Bitcoin to its all-time highest price as it surpassed $72,000 in March.

Whether Ethereum's price trajectory could achieve a similar feat hinges on the awaited decision by the US Securities and Exchange Commission (SEC) regarding the approval of spot Ethereum ETFs. Similar to Bitcoin, the approval and launch of ETFs have historically catalysed institutional demand, driving prices to record highs. Standard Chartered Bank anticipates the approval of US Ether ETFs on 23 May, projecting a surge to $8,000 by the end of 2024 and $14,000 by the end of 2025. However, regulatory ambiguity surrounding Ether's legal status presents a challenge, with concerns about whether it will be classified as a commodity or a security. The SEC has yet to rule on Ether's status, adding uncertainty to the ETF approval process.

The SEC has invited public comments on proposed rule amendments permitting the listing and trading of shares for three spot Ethereum ETFs on exchanges. From today (4 April), the US public has 20 days to provide feedback upon publication in the Federal Register regarding spot Ethereum ETF proposals from asset managers Bitwise, Fidelity and Grayscale. These ETF filings, submitted by Bitwise and Grayscale for listing and trading on NYSE Arca and by Fidelity on the Cboe BZX Exchange, precede the anticipated final decision by the commission on this investment vehicle, which is expected to be made in May.

Notably, a reported SEC investigation into the Ethereum Foundation — the Swiss non-profit organisation with deep ties to the Ethereum ecosystem — may influence the commission's decision regarding the approval or denial of a spot Ethereum ETF, potentially classifying the digital asset as a security. This would contradict previous comments by the regulator that suggest that Ethereum is more properly a commodity. With these mixed signals in the air, it's no wonder that investors are cautious about ETH. 

While some market participants remain optimistic about the potential of Ethereum technology and its role in powering decentralised applications, institutional demand for Ether lags behind that of Bitcoin. Digital asset funds tracking Ether have experienced outflows of $46.4 million in the month leading up to 23 March, in stark contrast to the over $4 billion inflows seen in Bitcoin products during the same period. Despite the challenges, Ethereum's technology continues to gain attention, with BlackRock unveiling its first tokenised fund on the Ethereum blockchain, signalling broader adoption of the platform for tokenising real-world assets.

Still no slouch: Ethereum's Q1 2024 revenue triples to $370 million

Don't take Ethereum's regulatory struggles as a sign of weakness. In fact, Ethereum is having a great year, even if its performance can't keep up with Bitcoin's. The first quarter of 2024 marked a period of exceptional growth for Ethereum, the largest blockchain network in terms of transaction volume. According to data from Coin98 Analytics, Ethereum's financial metrics exhibited robust expansion, with revenues tripling to an impressive $370 million in Q1 2024. This remarkable achievement signifies a substantial 210% year-over-year increase from the first quarter of 2023. Furthermore, Ethereum's transaction fee revenue soared to $1.2 billion during the same period, showcasing a remarkable 155% surge compared to Q1 of the previous year. 

There was also a notable uptick in total Ethereum transactions during the initial quarter of 2024, witnessing a robust surge of 8.4% quarter-over-quarter, surpassing a significant milestone of over 107 million transactions. The Ethereum decentralised finance ecosystem experienced substantial growth, with the total value locked surging by an impressive 86% quarter-over-quarter to reach $55.9 billion. All in all, Ethereum is in good health, but lacks the big push that Bitcoin is currently enjoying between the twin catalysts of spot ETF inflows and the halving of block mining rewards this month.

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Ethereum may not be as well-known as Bitcoin yet, but that doesn't have to be a bad thing. Using StormGain, anyone can benefit from the potential of the crypto market and seize opportunities before the mainstream public. As the cryptocurrency market awaits regulatory clarity and potential ETF approval, retail traders and investors seeking to capitalise on Ethereum's future price movements can trade ETH and 50+ top cryptocurrencies on StormGain, with low commissions and competitive perks to boost trade earnings.

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