After the successful launch of the spot Bitcoin and Ethereum ETFs, the former has outperformed the latter by a wide margin.
The next hope for the Ethereum ETFs now lies in staking rewards.
As of early April of this year, these products have only drawn in about $2.4 billion, which is far less than the $35 billion from Bitcoin ETFs.
According to Bloomberg ETF analyst James Seyffart in a recent tweet, the approval of staking features has milestones in May.
The market could see this approval as early as May of this year.
Ethereum has long been the underdog compared to Bitcoin. However, this asset could be ready to take another major leap forward in the ETF market.
After the successful launch of the spot Bitcoin and Ethereum ETFs in January and June of last year, respectively, the Bitcoin ETFs have outperformed their Ethereum counterparts by a wide margin.
The next hope for the Ethereum ETFs now lies in staking rewards.
Here are some updates about what to expect from the Ethereum ETF market and when to expect it, according to Bloomberg Intelligence analyst James Seyffart.
Ethereum ETFs launched in June of last year. However, unlike their Bitcoin counterparts, they have failed to draw in massive investor interest.
As of early April of this year, these products have only drawn in about $2.4 billion, which is far less than the $35 billion from Bitcoin ETFs in just a few months after launch.
One of the main reasons for this lackluster performance has been the absence of staking.
For context, staking is one of the major features of the Ethereum network, as a Proof of Stake blockchain.
Investors lock up a certain amount of ETH within the network to help secure the blockchain and validate transactions.
Because of this, they earn rewards in return for their “stake”. In other words, staking makes Ethereum a yield-bearing asset.
This also means that without staking capabilities, Ethereum ETFs are missing a major selling point.
The absence of staking capabilities has been the main reason for Ethereum’s underperformance compared to Bitcoin, according to many analysts.
As it stands, the US Securities and Exchange Commission (SEC) is the major decision-maker in this case.
While the agency has already allowed Ethereum ETF issuers to list options, it has yet to approve staking for these funds.
While said options approval came in on 9 April, many analysts see this as a sign that the SEC is becoming softer in its regulatory attitude.
Seyffart, in a recent tweet, stated that he believes staking could be next.
Staking capabilities could be next | Source: Twitter
More importantly, the approval of this feature has milestones in May, August and October, with the final deadline set for October.
Still, there is growing optimism that this approval could be coming earlier.
To understand the importance of this staking capability, it is important to first realize how attractive it makes Ethereum ETFs for institutional investors.
Bitcoin, as a Proof of Work asset, does not offer any kind of yield beyond price appreciations.
On the other hand, Ethereum allows investors to earn staking rewards between 3–5% annually.
In other words, adding staking could supercharge the Ethereum ETFs and make them more competitive against Bitcoin.
While the SEC makes its decisions though, major players are already taking positions for the staking feature.
Institutional $ETH staking just became inevitable | Source: Twitter
Texas in the US, for example, is reportedly working on building its own crypto reserves.
On the other hand, American banks have already received the green light to participate in validating Ethereum transactions.
This opens the door for institutional ETH staking and the market could be set for a major explosion.
If the SEC goes ahead with the green light for the Ethereum staking ETFs by May (or later in the year), the Ethereum ETF market could be in for a major shift.
For starters, there is likely to be higher inflows into the Ethereum ETFs. These funds will likely become more attractive to income-focused investors.
There will also be greater competition with the Bitcoin ETFs as the Ethereum market offers both price exposure and yield (something the Bitcoin ETFs simply cannot match).
Most importantly, banks and asset managers may also increase their ETH holdings, introducing a fresh wave of bullish sentiment across the crypto space.
On the other hand, if the SEC delays or denies staking integration, the Ethereum ETFs will likely continue to lag compared to Bitcoin’s.
Without staking, the passive yield component is missing. This could reduce the appeal of Ethereum compared to other crypto investment products.
This could widen the performance gap between Bitcoin and Ethereum further and reinforce Bitcoin’s dominance.
Overall, the Ethereum ETF staking decision could stand as one of the most important regulatory developments of the year.
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