Unlocking the Potential of Ethereum: How the Approval of the First Spot ETF Could Push ETH Price to $10,000
Table of Contents
Updates in the Ethereum Ecosystem
Ethereum Gas Fees and Total Value Locked (TVL) Levels
What Can We Expect Next?
Ethereum (
ETH
) is generating excitement in the cryptocurrency world as investors eagerly anticipate the launch of the first spot ETH ETF. Currently priced at $3,447 as of July 2, ETH has experienced a slight decline of 0.33% in the past 24 hours.
After hitting a monthly low of $3,244 on June 24, ETH has rebounded strongly, experiencing a 6% increase since then. This upward movement in price suggests a bullish sentiment among investors as they anticipate the upcoming ETF launch.
However, the U.S. Securities and Exchange Commission (
SEC
) has decided to delay the highly anticipated launch of Ethereum ETFs. Initially scheduled for early July, the launch has been postponed due to additional comments from the SEC on the S-1 forms submitted by potential issuers. These issuers now have until July 8 to resubmit their revised forms, potentially pushing the launch to mid-July or later.
This launch is part of a two-step approval process. The first step, the approval of form 19b-4, was completed in May. However, the S-1 forms, which represent the second step, do not have a fixed deadline, leaving issuers at the mercy of the SEC’s review timeline.
Now, let’s delve into the updates in the Ethereum ecosystem and explore what we can expect from the upcoming ETF.
Updates in the Ethereum Ecosystem
The Ethereum ecosystem is abuzz with activity as it gears up for the launch of its first spot ETH ETF. Vitalik Buterin, the co-founder of Ethereum, recently published a blog post outlining the latest developments and goals within the Ethereum ecosystem.
One key area of focus for Ethereum is improving transaction confirmation times. Currently, transactions on Ethereum’s Layer 1 (L1) network take 5-20 seconds to confirm, thanks to the implementation of EIP-1559 and consistent block times post-Merge.
While this speed is competitive with credit card payment processing, certain applications require even faster confirmation times, measured in milliseconds. Buterin has proposed potential changes to address this need.
Ethereum’s current consensus mechanism, Gasper, utilizes a slot-and-epoch architecture. In this system, validators vote on the chain’s head every 12 seconds, and it takes 32 slots (approximately 6.4 minutes) for all validators to cast their votes. Finality, which provides strong economic assurance, is achieved after two epochs (12.8 minutes). However, this process is complex and slow.
Buterin’s proposed single-slot finality (SSF) aims to simplify and accelerate this process. Instead of waiting for multiple slots and epochs, SSF would finalize each block before moving on to the next. This approach resembles the Tendermint consensus but retains Ethereum’s “inactivity leak” mechanism, which aids in chain recovery if validators become inactive.
However, SSF presents a challenge as validators would need to publish two messages every 12 seconds. Recent proposals like Orbit SSF suggest methods to mitigate this workload.
Additionally, Ethereum is shifting towards a rollup-centric roadmap. This means that while the base layer (L1) emphasizes security and data availability, Layer 2 (L2) solutions like rollups handle the majority of transactions.
Rollups offer the same level of security as Ethereum but at a greater scale and speed. However, users are seeking even faster confirmations than the current 5-20 seconds.
To address this demand, rollup preconfirmations have been proposed. This method involves a smaller group of validators quickly endorsing blocks, providing faster assurances to users. These preconfirmations are eventually published to L1 to ensure security and finality.
The proposed preconfirmation approach utilizes advanced Ethereum proposers to offer preconfirmations as a service. Users can pay an additional fee to ensure their transaction is included in the next block. If a proposer fails to fulfill their commitment, they face penalties. This mechanism can also be applied to L2s, facilitating faster transaction confirmations.
Faster transaction confirmations and simplified consensus mechanisms have the potential to attract more users and developers, thereby increasing the demand for ETH. As the launch of the spot ETH ETF approaches, these improvements could boost market confidence and drive up the price of ETH.
Ethereum Gas Fees and Total Value Locked (TVL) Levels
As Ethereum gears up for the launch of its first spot ETH ETF, two crucial aspects of its ecosystem come into focus: gas fees and total value locked (TVL).
Gas fees play an integral role in Ethereum’s operations, covering transaction and smart contract execution costs while incentivizing network security through validator rewards.
Recently, there has been a significant drop in gas fees. According to Dune Analytics, the average gas fee on June 30 plummeted to just 3 Gwei, equivalent to $0.14. This is a stark contrast to last year when median gas prices ranged between 15 to 20 Gwei, with a peak of 83 Gwei recorded on March 5 this year.
Several factors have contributed to this decline. Analysts attribute it to increased efficiency in the Layer 1 (L1) market, driven by expanded Layer 2 (L2) activity and the introduction of “blob transactions” via EIP-4844, which enhance Ethereum’s scalability.
Lower gas fees make Ethereum more accessible, potentially fostering broader adoption. Moreover, affordable gas fees can stimulate activity in sectors like decentralized finance (DeFi) and NFTs, which were previously hindered by high transaction costs.
Meanwhile, TVL represents the total capital held within Ethereum’s DeFi ecosystem and serves as a critical metric for network health and usage. However, ETH’s TVL has recently experienced a decline. After peaking at $67 billion on June 6, it has since fallen to $59.45 billion as of the latest data, marking an approximate 11.3% decrease.
This decline follows earlier growth in the year but remains well below its peak of $106 billion in November 2021, which coincided with ETH’s all-time high price.
Several factors contribute to this trend. Firstly, the overall volatility in the crypto market has impacted investor confidence across the board.
Secondly, lower gas fees could potentially reverse the decline in TVL by attracting more users and developers to Ethereum-based applications, thereby enhancing the network’s overall utility and value proposition.
What Can We Expect Next?
Matt Hougan, a leading expert on crypto and ETFs, predicts that Ethereum ETPs (Exchange-Traded Products) will attract $15 billion in net flows within their first 18 months.
This estimate is based on the relative market sizes of Bitcoin and Ethereum, as well as existing investment trends in crypto ETPs across Europe and Canada.
In these regions, Bitcoin ETPs hold a larger share of assets compared to Ethereum ETPs, roughly aligning with their market cap weights. Hougan anticipates a similar trend in the U.S., with ETH capturing approximately 22% of the market share, slightly lower than its 26% market cap weight.
Hougan further explains that U.S. investors currently have $56 billion invested in spot Bitcoin ETPs, projected to grow to $100 billion by the end of 2025.
Applying a similar growth pattern to Ethereum, he estimates that spot Ethereum ETPs will need $35 billion in assets under management (AUM) to reach parity with Bitcoin. Given that ETHE will launch with $10 billion in assets, the net flow required is approximately $25 billion.
Comparing these figures with the European and Canadian markets, where Ethereum ETPs hold about 22-23% of the total crypto ETP market—slightly lower than ETH’s market cap weight—Hougan finds consistency across geographies, reinforcing his confidence in the estimate.
After adjusting for expected lower relative demand and excluding carry-trade assets affecting Bitcoin ETFs but not Ethereum ETFs, Hougan revised his net flow estimate down to $18 billion, and further down to $15 billion.
Meanwhile, market sentiment surrounding the launch of Ethereum ETFs is bullish. Andrey Stoychev, the head of prime brokerage at Nexo, believes ETH could reach $10,000 by the end of the year. He suggests that ETH ETFs in the U.S. and Asia could drive ETH to this level, matching Bitcoin’s post-ETF performance.
If the predicted capital inflows materialize, Ethereum’s market cap could experience substantial growth, potentially driving its price higher.
However, as always, it’s important to remain vigilant and consider both the opportunities and risks associated with the crypto market. Trade wisely and never invest more than you can afford to lose.
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