ConsenSys CEO predicts a reduction in the ETH supply if spot funds are launched

What’s new? The approval of ETH based spot exchange-traded funds (ETFs) in the United States could lead to a reduction in the supply of the asset, according to Ethereum co-founder and ConsenSys CEO Joe Lubin. Institutions that already have access to bitcoin through the spot BTC ETFs launched on January 11 are likely to want to diversify their investments with new ETH products, he said.

Material by DL News

What else is known? Lubin expects the asset to face strong buying pressure once the spot ETH ETFs are approved, but the supply to meet that demand will be much smaller compared to when BTC ETFs were launched.

In the case of BTC, fund issuers buy free coins to back them on exchanges or over-the-counter (OTC) platforms each time they issue additional shares. In the case of Ethereum, about 27% of the total supply is staked: the coins are locked in contracts and generate revenue for owners for participating in maintaining the security of the network.

Lubin noted that a substantial portion of the coins are used in the underlying protocol, decentralized financial (DeFi) systems and decentralized autonomous organizations (DAOs). In other words, a significant portion of the ETH supply is not available for use by exchange-traded funds.

In addition, increased activity on the network will increase the amount of coins burned in transactions, which will also reduce supply. This deflationary model was introduced along with The Merge upgrade on September 15, 2022, when Ethereum changed its Proof of Work (PoW) consensus algorithm to Proof of Stake (PoS). Some of the coins paid as fees are destroyed to maintain the price of the asset.

In addition, the market value of ETH is significantly lower than that of BTC, making the former more sensitive to capital inflows.

According to Lubin, the approval of spot ETH ETFs “could be a pretty profound watershed moment” for Ethereum and the crypto industry as a whole.

Hashlab Mining previously noted that issuers of spot bitcoin ETFs are buying up an average of 2450 BTC daily, while daily mining volume has dropped to 450 BTC since the April 20 halving. DL News reported that some banks have directly approached an unnamed large mining company to buy its bitcoin holdings. The supply shortage for future ETH ETFs could be even more significant.

Earlier, the US Securities and Exchange Commission (SEC) asked issuers to update spot ETH ETF filings on an expedited basis, which many industry participants interpreted as preparation for the imminent admission of such products to the market. ETH and blockchain ecosystem-related coins jumped more than 20% in the moment.

ETH surges 21% amid rumors that spot ETFs could be approved

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Some experts reminded that the SEC tends to categorize ETH as a security, so the launch of new exchange-traded funds may not take place.

ConsenSys itself is also in discussion with the SEC regarding the classification of ETH as a security. The regulator warned the company of its intention to sue over violations of securities laws discovered in the work of its MetaMask crypto wallet. In response, the company gave a number of arguments in favor of the fact that ETH is not a security.