May 2024: A Breakthrough for Spot Ethereum ETFs
Research Team
Last Updated: 6/3/2024 | 11 min. read
Crypto markets appreciated and Ether outperformed the broader crypto market (as measured by the Grayscale Crypto Sectors Total Market Index) after regulators approved the initial filings for spot Ethereum ETFs in the U.S. market.
Also during the month, crypto-related legislation made progress on Capitol Hill. The latest survey conducted by The Harris Poll on behalf of Grayscale found that crypto remains a bipartisan issue ahead of November’s elections.
The Financials Crypto Sector led Grayscale’s Crypto Sectors, while Bitcoin moderately lagged the broader market, despite a pickup in net inflows into the U.S. spot Bitcoin ETFs.
Grayscale Research sees a favorable outlook for digital assets, but macro markets are already priced for smooth sailing, and could be susceptible to adverse surprises.
Crypto markets rallied in May 2024 as U.S. regulators seemingly paved the way for trading of spot Ethereum exchange-traded funds (ETFs). Like the spot Bitcoin ETFs listed in January 2024, these new products could open access to the crypto asset class to a wider range of investors, and potentially help accelerate public blockchain adoption.
Other than commodities, most traditional asset classes delivered positive returns during the month as market volatility broadly declined. On a risk-adjusted basis (i.e., accounting for each asset’s volatility), gains were led by growth stocks and emerging market (EM) currencies (Exhibit 1). Ethereum’s Ether token (ETH) outperformed on both an absolute and risk-adjusted basis, while Bitcoin’s risk-adjusted returns were in the middle of the range of traditional assets. The FTSE Grayscale Crypto Sectors Total Market Index—a measure of the returns for the largest and most liquid digital assets—gained 15% during May 2024, and its market capitalization reached $2.3tr.
Exhibit 1: Ether outperformed traditional assets and crypto markets
Exhibit 2: ETH price surged on possible approval of spot ETF in the U.S.
Crypto markets are benefiting from a variety of tailwinds, including steady inflows into the U.S.-listed spot Bitcoin ETFs, bipartisan efforts in Congress to bring regulatory clarity to the industry, and growth in activity within the Ethereum ecosystem. As long as the macro market backdrop remains benign, Grayscale Research believes that valuations can continue to climb through the (northern hemisphere) summer months and beyond. However, it’s important to stress that financial markets are already priced for smooth sailing: implied volatility has declined across many traditional assets (Exhibit 5). So while the favorable backdrop may continue, markets could be susceptible to adverse news about the economic outlook, Federal Reserve monetary policy, and/or the upcoming U.S. presidential election.
Exhibit 5: Implied volatility fell to low end of range
[1] Source: StakingRewards.com. Data as of May 31, 2024.
[5] A similar theme played out in public equity markets in mid-May, due to the reactivation of the X account of trader Keith Gill, known as Roaring Kitty. Source: New York Times.
[6] For example, IMX (+13%), PRIME (+18%), and YGG (+24%). Source: Artemis. Data as of May 31, 2024.
[7] Source: Artemis. Data as of May 31, 2024.
[8] Source: Bloomberg, Grayscale Investments. Data as of May 31, 2024.
[10] Source: Arkham. Data as of May 31, 2024. The estate also holds about 141k of Bitcoin Cash.
[11] The Constitution DAO token “PEOPLE” also contributed significantly to returns for the Financials Crypto Sector during May 2024.
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