The Ripple Effect: How Ethereum ETFs Could Change the Altcoin Market

[TL; DR]

The United States SEC approved spot Ethereum ETFs on 27 May 2024.

As many crypto projects migrate to the Ethereum blockchain its eco will grow in the future.
The launch of ETH ETFs may enable the Ethereum blockchain to outperform its competitors like Solana.

Introduction

The United States SEC’s approval of spot Ethereum ETFs had a strong impact on the performance of the crypto market as the prices of several leading cryptocurrencies rallied for a short period. For example, the price of Bitcoin surged to $70,000 while that of Solana rose to around $180.

In related crypto news, some analysts think that the approval of S-1 registration statements will likely lead to a bullish period. This analysis discusses how the launch of ETH ETFs will change the altcoin crypto market.

Ethereum’s ETF Surge: Unexpected Momentum and Its Altcoin Market Implicati

The United States SEC approved Ethereum ETFs will be launched after the submission of the S-1 registration statements. Notably, the SEC approved the proposals of several asset management firms that include Fidelity, Bitwise VanEck, Franklin, Grayscale and ARK Invest. The expected Ethereum ETF effect includes substantial gains in the ETH price and other layer-1 and layer-2 blockchain- based tokens like ARB and Avalanche.

Based on the anticipation of a rally of Ethereum network tokens Standard Chartered Bank forecasts the ETH price to reach $8,000 by the end of the year as a result of financial inflows from the ETFs. Towards the Ethereum ETF approval date, the ETH price surged by 22% . No doubt, the launch of ETH ETFs will have a far greater effect on the DeFi economy than the approval of spot bitcoin ETFs. The reason is that the Ethereum blockchain hosts more decentralized finance (DeFi) ecos than the bitcoin network.

How ETH ETF Approval Fuels Growth for Ethereum’s Eco

The launch of the ETH ETFs will likely lead to the growth of the entire Ethereum eco as a result of the expansion of different layer-1 and layer-2 blockchains that exist on it. Also, new crypto projects may migrate to the blockchain due to the rise in capital inflow into the Ethereum eco and its resultant popularity. Basically, we expect the growth of EVM compatible projects and L2 blockchains.

EVM-Compatible Projects Set to Thrive - The Edge of ETH ETF Approval on Open Ecos

No question, the launch of Ethereum ETFs will lead to the growth of EVM compatible projects. The reason is that these crypto projects may perform exceptionally well in the next crypto bull run. What this means is that EVM compatible projects like Arbitrum, Avalanche, Polygon, Uniswap and Aave may outperform other big crypto projects such as Algorand during periods of sustained DeFi rally.

Read also: Three Hong Kong Bitcoin/Ethereum ETFs Approved

How ETH ETF Bolsters Exchanges and Lending Protocols

Many decentralized exchanges (DEXs) and lending protocols will also benefit from the launch of ETH ETFs. The reason is that before the approval of ETH ETFs the crypto market had not yet witnessed mainstream decentralized finance adoption. Also, the ETFs will make investing in DeFi simpler than before which will increase liquidity in the sector. In addition, the ETFs will bring confidence among DeFi users who will likely accept many services including lending and borrowing.

It is also important to note that crypto projects that have much utility will benefit the most from the Ethereum regulatory clarity the ETFs have implied. This means that some decentralized exchanges, like Balancer and SushiSwap as well as borrowing and lending protocols such as Aave and Compound will benefit much which may lead to their network expansion.

The Impact of Ethereum ETF Approval on L1 Competitors

Ethereum layer-2 benefits that arise from the launch of ETH ETFS will extend to several blockchains that include Arbitrum and Avalanche. Such a development was evident during the recent post-Ethereum approval period when prices of most Ethereum-based network tokens increased by margins similar to that of ETH itself. As we know, rollups are now an important part of the Ethereum eco.

Nevertheless, Ethereum competitors may lose their market share in the DeFi eco. For example, the Solana market position may come under threat due to the expansion of the Ethereum network during the post ETH ETF launch era. Nonetheless, Solana may still attain new highs as a result of the regulatory clarity that emanated from the approval of the first batch of altcoin ETFs. In a nutshell, the approval of ETH ETFs has helped ETH to maintain its altcoin market leadership position as the network touted as Ethereum killers will lag behind it.

From the above discussion, it is clear that crypto investors should adopt a different altcoin investment strategy to reap the greatest gains the ETH ETFs will create For instance, layer1 and layer2 blockchain based tokens such as ARB and Avalanche may become an essential component of their crypto portfolios.

However, to diversify their crypto holdings they can also invest in ETH rivals like SOL since they are likely to have low price correlation. That strategy is important to hedge against crypto market volatility. Still, there is a need for crypto investor caution since all cryptocurrencies have high price volatility and there is a probability of more altcoin market changes.

Ethereum Approval is Good News for RWA tokens and zk-rollups

The Ethereum blockchain is home to many DeFi projects. As a result, many developments have occurred on the blockchain which include zero-knowledge proofs that drive and support many Ethereum L2 blockchains and real-world asset (RWA) tokenization projects. These developments have led to Ethereum’s high DeFi TVL growth which has further attracted investment to the network.

With the recent Ethereum technological development and the launch of ETFs we are likely to witness blockchain project migration to the network. There is a possibility that some Ethereum based projects will also transition from layer 1s to rollups.

Read also: Tokenization Of RWAs: Beyond The Hype

New Developments on Ethereum Blockchain: A Catalyst for New Crypto Crimes

Whereas the developments pertaining to the Ethereum eco are promising there is a need to heighten DeFi investment security. The reason is that some new projects that will come on the blockchain may attract crypto-criminals like hackers. Similarly, the growth in Ethereum DeFi TVL may be accompanied by more digital crimes like rugpulls which may lead to loss of much invested funds.

Conclusion

The approval and launch of spot ETFs in the United States will likely lead to the growth of the Ethereum eco. As an example, some projects may migrate from other blockchains to the Ethereum network. On the other hand, Ethereum competitors may experience a decrease in their market share after the launch of the ETFs.

FAQs about Ethereum ETFs

What does Ethereum ETF mean?

An Ethereum ETF is an investment asset that tracks the price of Ether (ETH). Unlike ETH that exists on the blockchain Ethereum ETFs are traded on traditional financial markets.

Are altcoins based on Ethereum?

All cryptocurrencies that are not bitcoin are called altcoins and exist on various blockchains including Ethereum, Solana and Avalanche. Whereas some altcoins exist on Ethereum most of them are found on other blockchains such as Tron and Algorand.

Is Solana built on Ethereum?

Solana is not built on Ethereum since it is a standalone blockchain. In fact, Solana is one of Ethereum’s greatest competitors.

What is the best Ethereum ETF?

ProShares Ether Strategy ETF (EETH) is the best Ethereum ETF on the market. Other leading Ethereum ETFs are Bitwise Bitcoin and Ether Equal Weight Strategy ETF (BTOP), VanEck Ethereum Strategy ETF, ProShares Bitcoin and Ether Market Cap Weight Strategy ETF and Bitcoin and Ether Equal Weight Strategy ETF. However, these are ETFs that provide exposure to Ethereum through futures.