Amidst widespread speculations of an imminent spot Ethereum exchange-traded fund (ETF), Joe Lubin, the network’s co-founder and Consensys’ CEO, believes that the product would create a supply shock. In an interview with DLNews on Tuesday, Lubin noted that purchasing pressure for Ether would drive immense scarcity for the crypto asset.
Lubin alleged that the “pent-up” buying pressure is expected as institutions that have already invested in Bitcoin through ETFs will likely diversify into Ethereum ETFs, causing a ‘floodgate’ of demand for Ether. The Ethereum co-founder also noted that the token’s supply mechanism would further heighten the impending scarcity.
“There’s going to be a pretty large amount of natural, pent-up pressure to purchase Ether,” he said.
However, the supply of Ether available for investment is limited due to a significant portion being locked in staking, DeFi protocols, and DAOs. This imbalance between demand and supply is expected to lead to a supply crunch.
Staking’s Impact on Available Supply
Lubin’s remarks shed light on the significant differences between the Ethereum and Bitcoin ecosystems, particularly concerning supply dynamics. Unlike Bitcoin, where authorized participants could easily source coins from exchanges or over-the-counter markets to meet ETF demand, Ether’s ecosystem presents unique challenges.
Although Ethereum has an unlimited supply, the blockchain has kept its inflation rate close to negative with its periodic token burn. On-chain data shows that over 27% of the total Ethereum supply has been staked on the Beacon Chain and other networks, effectively rendering it unavailable for immediate trading on exchanges.
Lubin emphasized that Ether’s market value is substantially lower than Bitcoin’s, making its price more reactive to inflows. He cited that a considerable portion of Ether’s supply is already inaccessible for ETF usage due to staking and other commitments within the Ethereum ecosystem.
“Much of the Ether is put to work in the core protocol, DeFi systems, or in DAOs,” Lubin said, referring to decentralized autonomous organizations.
Is Ether ETF Approval Almost Certain?
Just one day after the SEC requested an amendment of the 19b-4 documents filed by prospective Ether ETF issuers, about five of them have submitted an updated request. At the close of business on Monday, Fidelity, VanEck, Ark Invest, Invesco Galaxy, and Franklin have all resubmitted an amended proposal through the Chicago Board Options Exchange (CBOE).
Multiple sources close to the matter said on Tuesday that the SEC disclosed to exchanges that it is “leaning towards approving” the spot Ether ETF, further raising optimism about a likely approval soon. These contacts between the SEC, issuers, and exchanges were seen before the US regulatory body sanctioned its first spot Bitcoin ETF.
Meanwhile, Ethereum has continued to show strength, holding above $3,700 at press time. ETH is up 3% in the past 24 hours, in contrast to Bitcoin, which slid 1% below $70,000.
Mishael Nwani | July 1, 2024
