In today's discussion we’ll explore two significant factors that contribute to Ethereum's appeal in the current investment climate: the anticipated introduction of Ethereum ETFs and the forthcoming Dencun upgrade.
ETF Aspirations
The potential approval of an Ethereum ETF presents a significant opportunity. Much like the approval of Bitcoin ETFs, an Ethereum ETF would offer institutional and retail investors a convenient way to gain exposure to Ethereum without the need to directly hold the underlying asset. This accessibility is likely to attract a new wave of capital into the Ethereum ecosystem, driving up demand and consequently, prices.
There are already a host of Ethereum ETF applications filed with the SEC, including the same sponsors that were approved for the bitcoin ETF. Blackrock, Fidelity, Bitwise, Ark, VanEck, Franklin Templeton, and Grayscale all have filed applications for an Ethereum ETF.
Ethereum has a $300 billion market cap, and has unique supply characteristics as discussed previously here “Ethereum Post Merge”, chiefly among them that the protocol will become deflationary in supply during periods of high transaction demand.
Bitcoin ETFs have gathered over $10 billion in assets in their first month. A similarly successful launch of ETH ETFs will heavily drive demand and ETH protocol activity.
Heading Into Upgrade
The Dencun upgrade on Ethereum introduces "proto-danksharding," a significant step towards improving the network's scalability. This upgrade is designed to lower transaction fees, especially for layer-2 solutions like Arbitrum and Optimism, by approximately 80-90%. It achieves this by introducing a new way to store "blob" data, making transactions more efficient and cheaper, particularly benefiting users and developers who rely on these layer-2 platforms for faster and more cost-effective transactions. A successful upgrade will lower the threshold for L2 activity, benefitting many L2s and in particular Arbitrum.
Option Watch
We mentioned the Bitcoin and ETH options environment previously here. ETH options remain sedated. The below chart paints a clear picture, ETH is up 15% ytd and option vol. is down.
We are heavily weighted in ETH call options through September 2024 anticipating positive catalysts playing out.
Conclusion
The combination of the Ethereum ETF launch, heavily discounted option premiums, and the Dencun protocol upgrade presents a compelling case for Ethereum and Ethereum L2s.
Follow us on X for updates.