Friday Newsletter

Explore the latest trends, gain valuable insights, and stay informed in the dynamic cryptocurrency ecosystem.

31 May 2024

How Ethereum ETFs Could Impact Your Favorite Altcoins

The approval of Ethereum (ETH) exchange-traded funds (ETFs) has stirred the market, leading to significant price movements and speculation about its impact on altcoins. While some projects may benefit, others like Solana might face challenges. Here’s a closer look at what Ethereum ETFs could mean for altcoins:

Ethereum’s Price Surge and ETF Approval

The announcement of the application process for spot Ether ETFs moving forward took many by surprise. Most investors had expected the Securities and Exchange Commission (SEC) to reject these applications. However, when Bloomberg’s ETF analysts increased their approval odds from 25% to 75%, ETH’s price surged, jumping 20% to over $3,800.

This rally underscores the high stakes involved with the spot ETH ETF approval. Unlike Bitcoin ETFs, which solidified Bitcoin’s status as an institutional asset, an ETH ETF would legitimize altcoins and potentially drive the next bull market. Here’s how different altcoins might be affected:

Layer-2 Solutions and DeFi Originals Rally

Ethereum layer-2 solutions, such as Optimism and Arbitrum, are poised to benefit significantly. These tokens saw substantial price increases, mirroring ETH’s rally. Rollups have become integral to the Ethereum ecosystem and will likely thrive with its success.

DeFi originals like Uniswap and Aave, closely tied to Ethereum’s EVM technology, also stand to gain. These projects experienced notable price surges recently and are expected to continue benefiting from the legitimacy an ETF approval brings to Ethereum-based projects.

EVM-Compatible Projects Set to Prosper

Projects and blockchains compatible with Ethereum Virtual Machine (EVM) will likely fare better than closed ecosystems. This bodes well for Avalanche and Polygon, which have EVM compatibility, unlike Algorand. With the ETH ETF approval, EVM compatibility will become more crucial, driven by the regulatory clarity and hype surrounding Ethereum.

Decentralized Exchanges and Lending Protocols Win

The ETH ETF could simplify and secure DeFi investments, potentially driving mainstream adoption. Projects offering functional utility, such as decentralized exchanges like SushiSwap and Balancer, and lending protocols like Aave and Compound, will benefit the most.

Challenges for Ethereum Competitors Like Solana

Ethereum competitors, including Solana, might struggle in a post-ETH ETF environment. Although Solana and similar projects may still reach new highs, Ethereum’s dominance in DeFi could leave these “Ethereum killers” behind.

Positive Outlook for zk-Rollups and RWA Tokens

Ethereum’s technological advancements, such as zero-knowledge proofs and real-world asset (RWA) tokenization, are likely to see increased development. BlackRock’s tokenized Treasury fund, BUIDL, built on Ethereum, is an example. With the ETF approval, more projects might migrate to Ethereum rollups, seeking better development prospects.

Increased Risks and Opportunities in DeFi

While the growth in DeFi total value locked (TVL) is expected, it also brings more risk. Investors need to enhance their security measures and thoroughly research projects to avoid fraud and rug pulls. The principle of “buy the rumor, sell the news” applies, with short-term volatility anticipated following the ETF approval. Prudent investors should avoid FOMO-driven decisions and wait for market pullbacks to make informed moves.