Ether ETF Hopes Drive Smart Money Bets After Historic Bitcoin ETF Approval

• The approval of spot bitcoin ETFs has sparked optimism among ether traders, who are hoping for a spot ether product as well.
• BlackRock has already filed a prospectus for its iShares Ethereum Trust, a spot ether exchange-traded fund, with the SEC.
• The potential approval of an ether ETF could increase investment and interest in Ethereum-based projects and layer 2 networks, leading to more innovation and growth within the ecosystem.

The historic U.S. approval of spot bitcoin [BTC] exchange-traded funds (ETF) on Wednesday has buoyed ether [ETH] traders, who are betting the token that powers the Ethereum network could be next in line.

New deadline to obsess over just dropped

May 23rd is the final deadline for decision on VanEck’s spot ETH ETF pic.twitter.com/dgi5EVbPeQ

— Will (@WClementeIII) January 10, 2024

The ETH price has jumped 10% in 24 hours, while bitcoin added 1.3%. Tokens of layer 2 networks, which operate as individual blockchains but are ultimately built atop Ethereum, surged as well. Arbitrum’s ARB and Mantle’s MNT both gained more than 20%. Other Ethereum ecosystem tokens, ranging from meme coins to those that power Ethereum-based applications, rose 14% on average, the category tracked by CoinGecko shows.

“The largest smart money inflows” were directed toward the Ethereum ecosystem in the past 24 hours, Nansen analyst Martin Lee said in a Telegram message. Nansen defines smart money as wallets that trade or invest in a way that is considered experienced or well informed and are usually profitable.

The process for a spot ether ETF has already started. Ark 21Shares and VanEck, both sponsors of approved bitcoin ETFs, filed the paperwork with the Securities and Exchange Commission (SEC) back in September. And BlackRock, the world's largest asset manager and also a bitcoin ETF sponsor, filed an S-1 prospectus for its iShares Ethereum Trust in November.

Some traders told CoinDesk that an ether ETF could bolster the growth of Ethereum-based financial applications, whose use cases range from on-chain trading and lending to issuance of real-world assets, or tokenization, on the blockchain.

“A potential approval of an ether ETF could further legitimize Ethereum's standing in the mainstream financial world, leading to increased investment and interest in Ethereum-based projects and layer 2 networks,” said RJ Ke, a researcher at Ethereum rollup service Taiko. “The anticipation could foster more innovation and growth within the Ethereum ecosystem as well.”

Bets on Ethereum-based tokens may spark a reversal of fortunes for ETH investors, which underperformed bitcoin in 2023. Bitcoin, the largest cryptocurrency by market cap, climbed more than 150% last year while ether, the No. 2, added about 90%.

“The approval of the Bitcoin ETFs by the SEC has opened the door for other cryptocurrencies,” said Lucy Hu, a senior analyst at Metalpha, in an email. “The market is now paying close attention to Ethereum ETF applications ... As the ETH spot ETF deadline is coming close, we believe more institutional investors will allocate more ETH in their portfolios this year to capture more returns.”