Kaiko Research said on May 27 that the approval of the Ethereum ETF is a positive sign for the digital asset’s long-term growth despite potential short-term headwinds.
According to a report by Kaiko, this approval removes much of the regulatory uncertainty associated with classifying Ethereum as an asset class.
Will Cai, head of indices at Kaiko, said the approval means the SEC will implicitly treat ETH as a commodity rather than a security. He added:
“(This approval) is likely to have a significant and positive impact on how all similar tokens are regulated in the United States…”
Contrary to previous expectations, the SEC approved the ETF’s 19b-4 filing on May 23. The agency must still approve the S-1 order. A Spot Ethereum ETF is expected to launch in the coming weeks and months.
Leakage may appear in grayscale
Despite optimism about regulatory changes, Kaiko believes Grayscale’s ETHE fund is likely to experience outflows, which could put selling pressure on ETH as the new fund begins trading.
It wrote:
“The overall impact of ETHE redemption on the market remains uncertain.”
Grayscale’s ETHE currently has $11 billion in assets under management (AUM). Kaiko expects the fund to see average daily outflows of $110 million after it begins trading as an ETF.
By comparison, Grayscale’s Bitcoin fund, GBTC, saw outflows of $6.5 billion, or 23% of AUM, during its first month as an ETF.
Moreover, by the end of January, inflows from other ETFs offset or exceeded GBTC outflows.
Hong Kong ETF
Kaiko also paid attention to Hong Kong’s ETH ETF. The company said the “sluggish” launch of foreign funds indicated greater uncertainty about how the ETHE buyback would impact the market.
Hong Kong’s spot ETH ETF has seen net outflows of $4.4 million since its launch in early May, according to separate data from Farside.
Lastly, Kaiko mentioned centralized exchange data. ETH’s market depth is close to $226 million, which is approximately 42% below its average pre-FTX level. ETH is only 40% concentrated on US exchanges, down from 50% in early 2023.