To investors,

The Ether ETFs will begin trading today. These are the second set of crypto ETFs that have been approved by the SEC for trading. The approval of an asset other than bitcoin is a milestone for the industry and signals that more assets will eventually make their way to Wall Street.

One of the questions I continue to get is whether the ETH ETFs will mimic the Bitcoin ETF launch. I am not convinced that is the case. The Bitcoin ETFs were the most successful product launch in history. And the demand didn’t stop there — for example, the Blackrock Bitcoin ETF has had more net inflows year-to-date than Invesco’s QQQ ETF.

That is an insane data point of demand.

So what do I expect will happen with the Ether ETFs? The short answer is I am less bullish. Here are a few reasons why:

1. The story for Ethereum is less clear — bitcoin is digital gold, which is very easy to understand, but understanding a “world computer” or a “smart contract platform” is not as obvious to the casual investor.

2. There will be no staking available to ETF holders — investors who hold spot Ether are able to drive cash-flow through staking, which can be very attractive to Wall Street investors, but initially the ETF issuers will not be allowed to send these staking rewards to ETF investors. This will temper the capital flows to the new ETFs.

3. There is more competition — Bitcoin is the winner when it comes to a digital store-of-value. Ethereum was the winning smart contract platform until the last few years, but now there are many other competitors who have become cheaper and/or faster. This competition will fragment capital flows to the asset.

4. There is less media coverage — the Bitcoin ETFs were the talk of Wall Street when they were approved in January. Every media website and TV station had constant coverage of the launches. As of early this morning, I did not see any front page stories on CNBC, Bloomberg, or Wall Street Journal about the Ether ETFs, which signals the hype and euphoria is much lower for this launch.

These four points do not mean that the Ether ETFs will be unsuccessful. I anticipate that capital will flow into the funds, but it will be a much smaller amount. If that capital flows, the price of ether will rise as well. The question is how much impact will the ETFs have on price and no one knows the answer yet.

In order to get a better understanding of the bull argument for ETH ETFs, I asked Bitwise CIO Matt Hougan to explain how traditional investors will view the asset. Here is what he said:

As Chief Investment Officer of Bitwise Asset Management, I have one big advantage over most investors: Day in and day out, my team and I meet with financial advisors, family offices, and institutions controlling billions of dollars to talk about crypto. All told, last year we did more than 20,000 meetings.

These meetings give me a unique view on how professional investors are thinking about digital assets. Which is why today, as we celebrate the historic launch of spot Ethereum ETPs, I can tell you one thing: There will be demand for Ethereum ETPs. And, I believe it will be significantly larger than most are expecting.

It may take weeks, months, or quarters to appear. But everything I’ve heard from these investors over the past year tells me that: 1) they want exposure to Ethereum, and 2) they will use ETPs like the Bitwise Ethereum ETF (ticker: ETHW) to achieve it.

Here are three reasons why.

1) Diversification Is Rule #1 on Wall Street

One of the first things you’re taught as an investor is to diversify. Don’t own one stock; own a basket. Don’t own one bond; own a portfolio.

Retail investors know this, but professional investors live this. It’s drilled into their heads from the moment they get their first job. Failure to diversify is an unforgivable sin.

For example: I was speaking with the CEO of a $100+ billion advisory platform last month about Bitcoin ETPs, and his number one concern was concentration risk.

“Why should I allow my advisors to allocate to one crypto asset?” he asked me. “What if it isn’t the winner?”

He was hoping the SEC would approve Ethereum ETPs so that clients could be diversified. After all, Bitcoin is only ~50% of the crypto market. What about the other 50%?

I think most investment professionals fit this mold.

In total, investors hold more than $50 billion in Bitcoin ETPs. If even half of these investors decide to diversify their crypto exposure, the flows into Ethereum ETPs could be significant.

2) Ethereum Is Home to the Most Exciting Use Cases

The second reason I believe investment professionals will flock to Ethereum is that it hosts some of the most exciting applications of blockchain technology, including those that appeal most to investment professionals, like stablecoins and tokenization.

Bitcoin is a divisive asset. That’s another anecdote I’ve gleaned from thousands of conversations with investment professionals. Many of them struggle with the idea of “digital gold” or a “non-sovereign currency,” while others simply do not invest in gold as a matter of principle. But nearly every investment professional around the world invests heavily in disruptive technology.

These investors are keeping their eyes on the large financial institutions like BlackRock, Citibank, and JPMorgan, all of which are experimenting with tokenization—representing ownership of financial assets on a blockchain. And they are eyeing fintech giants like PayPal, which is hard at work developing the stablecoin market. Add in decentralized social networks and prediction markets, and their eyes keep widening.

As investors discover that these trends are gaining real traction, they’ll eagerly search how to profit from them. Ethereum could be the obvious choice.

3) Ethereum Is a Cash Flow-Driven Asset

The final factor likely to drive interest is that Ethereum is a cash flow-driven asset. Many investment professionals tell me that they just can’t stomach the fact that Bitcoin doesn’t produce cash flows. They don’t understand why it’s valuable.

By comparison, the Ethereum blockchain generated $2.1 billion in revenues last year, most of which was used to “buy back” ETH and reduce the supply on the market. For traditional investors, this sounds a lot like a stock buyback program, and is a valuation driver they can get their head around.

As the Ethereum ecosystem continues to grow, its revenues will grow, too. And once professional investors see that Ethereum is a high-growth technology platform generating billions in cash flow, it will look like an attractive addition to their portfolio alongside other high-growth, cash flow-driven assets.

My colleague Jeff Park, for instance—the head of alpha strategies at Bitwise—has demonstrated that blending ETH and an ETF that tracks the Nasdaq-100 significantly boosts long-term returns compared to just investing in the latter.

What We Expect: $15 Billion in Net Flows

The Bitcoin ETPs that launched earlier this year were the most successful launch in history. From what I’m hearing from investment professionals, Ethereum ETPs could be a close second.

All told, our analysis suggests products like the Bitwise Ethereum ETF (ticker: ETHW) could collectively pull in $15 billion in net inflows over the next 18 months.

How will that impact ETH’s price? Well, I guess we’re about to find out.

So there is the bull and bear case for the Ether ETFs. It will be very interesting to watch the capital flows. Bitcoin surprised everyone to the upside and maybe Ether will do the same. Regardless of the fund performance, it is clear that regulators are going to approve many crypto assets in the US market. That alone is a win for the industry.

Hope you all have a great day. I’ll talk to everyone tomorrow.

-Anthony Pompliano

Founder & CEO, Professional Capital Management

Johann Kerbrat is the Vice President and General Manager of Crypto at Robinhood.

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