Is Ethereum Ready for an Explosive Move? Kaiko Analysts Believe ETH Ready For Action Post Regulatory Clarity

  • SEC’s unexpected partial approval for spot ETH ETFs has markedly shifted Ethereum’s market sentiment, with full trading pending further S-1 approvals.
  • Modifications in ETF filings and a rise in approval odds have spiked ETH’s volatility, indicating heightened market anticipation and stress.
  • Potential significant outflows from Grayscale’s ETHE could pressure ETH prices, although the broader market impact remains uncertain due to offsetting inflows.

After last week’s partial approval of spot ETH ETFs by the US Securities and Exchange Commission (SEC), Ether experienced an impressive price rally amid increased investor mood.

The unexpected approval of 19b-4 filings allows applicants to list their funds at major exchanges like NYSE, Cboe, and Nasdaq. However, trading will not start until the S-1 forms from issuers such as BlackRock, Fidelity, and VanEck are approved, potentially delaying the launch by several weeks.

Related: JPMorgan Casts Doubt on Future Crypto ETFs Without Clear US Regulatory Guidelines, Despite Ethereum ETFs

The likelihood of approval had suddenly increased after exchanges modified their filings to remove staking, and Bloomberg updated its approval probability for ETH ETFs from 25% to 75%. Following these developments, ETH’s implied volatility spiked dramatically, analysts at Kaiko said.


Head of Indices at Kaiko, Will Cai, stated:

With these approvals, the SEC implicitly stated that ETH (without staking) is a commodity rather than a security. This isn’t just about access to ETH, but has significant and likely positive ramifications on how all similar tokens will be regulated in the U.S. with respect to trading, custody, transfer, etc.

Will Cai

A Look at Key Ethereum Metrics

Kaiko wrote in a note that the ETH market experienced a sharp shift in sentiment recently, which the analysts put down to an inverted volatility structure where short-term implied volatility surpassed longer-term forecasts, signalling market stress.

ETH Implied Volatility, source: Kaiko

According to the analysts, ETH perpetual futures funding rates soared from yearly lows to multi-month highs within three days, and open interest reached a record US$11 billion (AU$16.5 billion), indicating significant capital inflows.

Regarding the ETH/ BTC ratio they said:

The ETH to BTC ratio, which measures the two assets’ relative performance, also surged from 0.044 to 0.055 despite remaining below February highs.


Will Grayscale Suffer Similar Outflows with Ether ETFs?

Once ETH ETFs launch, we can expect a repeat of what happened with BTC ETFs. Kaiko wrote, “it is reasonable to expect selling pressure on ETH from likely outflows or redemptions due to Grayscale’s ETHE”, which over the past months traded at a discount between 6% to 26%.

ETHE, with over US$11 billion (AU$16.5 billion) in assets, could see significant outflows, similar to the 23% experienced by GBTC when Bitcoin ETFs launched:

Should we see a similar magnitude of outflows from ETHE, this would amount to $110 million of average daily outflows or 30% of ETH’s average daily volume on Coinbase.


However, the net market impact remains uncertain, as initial outflows from GBTC were eventually offset by inflows into other BTC ETFs, contrasting with the tepid start of Hong Kong ETFs, the analysts concluded.

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Aaron Feuerstein

Aaron Feuerstein

Aaron Feuerstein is a freelance writer based in Melbourne. His focus is on decentralised finance and the regulatory space surrounding blockchain. He holds a Master's in Accounting. When he is not studying the latest legal case, he enjoys his time as a modest but eager hobby cook.

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