It’s boom time in the cryptocurrency sector. Ethereum (ETH 1.39%) and Bitcoin (BTC 0.25%) just picked up yet another reason that makes them worth a small investment of $1,000, even if you already hold some of each.
Here’s what could happen and why it’s worth investing ahead of time.
These two major coins just got exposure to an interesting new catalyst
The Securities and Exchange Commission (SEC) on Jan. 30 approved the initial part of an application by Bitwise Asset Management to issue a combined Bitcoin and Ethereum exchange-traded fund (ETF), according to Bloomberg. The approval was granted on an expedited basis, and now it is highly likely that the final go-ahead will come soon, at which point it will start trading on the market.
Upon the announcement, the existing set of ETFs that hold either Bitcoin or Ethereum saw inflows of roughly $655 million in new cash, suggesting that there are institutional investors who see the combined ETF as a possibility that could send prices of both assets higher. How much higher is unclear, but this is a (new) contribution to the investment thesis for both coins.
The fact that Bitwise’s prospective ETF seeks to offer a blended exposure to both coins at once means that it won’t perform precisely like anything else that investors with traditional financial accounts typically have access to. Notably, the fund is weighted by the market caps of Bitcoin and Ethereum, so it will perform a lot more like Bitcoin than Ethereum. That’s useful, because it means investors would be able to buy an asset that could, over the next three to five years, capitalize on the relative undervalue of Ethereum at its current price point without sacrificing most of the generally conservative attributes of an investment in Bitcoin.
Keep your estimates grounded here
As exciting as it is to see that there’s a new financial instrument which might further integrate Bitcoin and Ethereum into the traditional financial sector, thereby drawing more outside cash into both coins, investors need to understand that the new ETF probably won’t be a game changer. Nor does it need to be for these assets to be worth buying and holding for the long haul.
Ethereum and Bitcoin ETFs have existed separately for a while. Here’s a chart of the gains of these two coins during the past three years, for reference:
Bitcoin Price data by YCharts
Can you guess based on the chart alone when the ETFs for these two coins started trading after their approval?
If you said early January 2024 for the first Bitcoin ETFs and late July 2024 for the first Ethereum ETFs, you’d be right — but you’d probably only get it right if you already knew the answer. Simply put, ETF approvals and the commencement of trading are not definitive catalysts for the coins. Just look at the price graph for Ethereum after July.
In the event that the blended Bitcoin-Ethereum ETF gains popularity with investors, expect other ETF combinations to launch, too, which could support higher prices as well.
Nonetheless, don’t get a second mortgage to invest more in Bitcoin or Ethereum because you expect their prices to go to the moon once the new ETF starts trading. The chance of that happening is close to nil. Instead, consider that this is a positive event that makes it worthwhile to up your exposure by a more modest amount, like $1,000, provided that you’re planning to retain your tokens for at least a couple of years to capture the full benefit of any inflows to the ETF or others like it.
Alex Carchidi has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
