The Ethereum (ETH) spot ETFs are going live on July 23.
There is likely to be a little bit of selling pressure as the ETHE GrayScale trust will then be converted to an ETF and funds that have been locked for years will be able to exit. Recall what happened with GBTC.
I expect that the market has learned from that episode, however, as the resulting buy pressure was quite strong and BTC reached a new all-time high shortly thereafter.
Notably, BTC beta plays–coins with higher volatility–outperformed materially in that situation. Witness STX’s run (in blue) relative to BTC (in orange).
How can we learn from this episode for the ETH spot ETFs, bearing in mind that the expected capital flows will be proportionally smaller?
Strategy 1: Dip Buying
As long as the macroeconomy stays strong enough–flush with enough liquidity–then dip buying makes sense.
The idea is simple: Dollar Cost Average (DCA) your ETH buys – especially during the forced selling from ETHE.
You will need to be willing to hold for more than a quarter to see your returns materialize and you should have some clear indicators for when to sell. Let me give three that I have in mind.
First, a reading on the NFCI above -.3 might be cause for concern. We are not there yet (see the macro section below).
Second, an aggressive increase in interest rate cuts would be another cause for concern. Why? Because the only reason the FED would do this is because they anticipate a recession.
Third, watch the Sahm rule.
I do expect–as Claudia Sahm herself does–that the Sahm rule will trigger a false positive reading in the coming months given the anomalous effects of COVID (source). Three sequential monthly readings above .5 would be more troubling for me. It presently stands at .43. And to parody George Bush “Don’t predict the predictor.”
At this point, it seems likely that we’ll have enough liquidity to support a dip buying strategy even if the US does fall into a recession. That eventuality, though real, is likely to transpire at least 3 quarters from now.
Strategy 2: ETH Beta
If STX outperformed with BTC, what would outperform with ETH?
What matters for anything deemed beta on x coin is largely the surrounding narrative–and the coins must have a smaller market cap.
STX is not the best L2 for BTC. It’s old and requires new teams to learn a peculiar language. CORE is a much better L2 that will onboard new teams easily. STX still serves as a better BTC beta play, however, since it has the stronger narrative.
Native yield L2s on ETH, such as Blast, might work. I don’t see the momentum there at present.
Rather, the best ETH beta plays appear to be in meme coins. PEPE rallied 23% in a day = 7x ETH’s rally.
In short, the narrative appears to be favoring memes as the top ETH beta play–so think of the usual suspects: PEPE, BRETT, ANDY (on ETH).
Strategy 3: The Solana ETF Narrative
The narrative behind the Solana spot ETF is mistaken. There is a miniscule chance it’ll be approved in this cycle, even with a Trump presidency.
The crypto market, however, is addicted to “the next x” sort of narratives. Once ETH is approved, what is the next coin to be approved? Well, the crypto market thinks it’ll be SOL.
This narrative will be supported through the election. Looking at predictive metrics–and I prefer Nate Silver’s–the election is shaping up to be a solid victory for Trump. The reason is that Trump is winning by statistically significant margins in every swing state.
Trump’s first acts in office are unlikely to favor cryptocurrencies because he has other matters, including personal grievances, that he wants to address initially.
But realities are not what matter. The narrative does. And I expect this narrative to stay strong through the election cycle and maybe some months after.
To execute on this strategy–simply load up on SOL, especially in what is likely to be the ETHE dip. DCA is probably the way. Maybe set some limit orders at lower amounts–at least 10% discounted from current numbers.
That’s it for this one: 3 solid strategies for the coming week.
Happy Trading!
- Sebastian Purcell, PhD
