ETH: Stablecoins And Tokenization Could Reshape Finance

Summary Ethereum is at a pivotal moment, becoming foundational to finance, with the Grayscale Ethereum Mini Trust ETF offering the lowest expense ratio out of all Ethereum ￰0￱ catalysts include explosive stablecoin growth and real-world asset tokenization, all supported by increasing regulatory ￰1￱ I'm bullish in the long term and think a position is worth starting now, it seems wise to wait for a dip before getting too aggressive with purchases. Ethereum-related risks include volatility, competition, and the potential for layer-2 networks to reduce gas fee revenue, but the upside potential from growing adoption trends outweighs these concerns for long-term ￰2￱ the tokenization and stablecoin markets are forecast to be worth trillions of dollars in a few ￰3￱ ( ETH-USD ) sits not too far away from its all-time high of nearly $5,000 and is just coming down from a resistance ￰4￱ left me wondering whether this is the top of yet another hype cycle or if we can break through resistance.

Notably, Bitmine Immersion Technologies ( BMNR ), the largest ETH treasury company, stated that Ethereum is having its "1971 moment" (more on that later). Fundamentally, I agree with that ￰5￱ is becoming increasingly important to the financial system, and the Grayscale Ethereum Mini Trust ETF ( ETH ) is a good way to gain exposure to the underlying ￰6￱ to the "1971 moment" part. I touched on this point a bit in my BMNR article, which you can read here , but basically, when the United States abandoned the gold standard in 1971, the dollar became a synthetic currency backed by the ￰7￱ rather than ￰8￱ this move, there was a wave of innovation in the financial world, from the creation of mortgage-backed securities to swaps to money market funds and ￰9￱ a similar way, Ethereum is paving the way for new programmable financial ￰10￱ usage is growing quickly, as are tokenized assets, and the regulatory landscape for crypto has never been better.

Nevertheless, risks remain, which I'll outline later on. Overall, I am bullish on Ethereum in the long term, leading me to give the ETH ETF a Buy rating, especially since it has a low expense ratio and good liquidity levels. However, since we're not far off from all-time highs and have already seen a big run-up in ETH's price recently, investors should consider waiting for a dip in ETH before getting too ￰11￱ Does the Grayscale Ethereum Mini Trust ETF Do Exactly? Put simply, the Grayscale Ethereum Mini Trust ETF is designed to give investors exposure to the price performance of ETH-USD without needing to directly buy, store, or manage the cryptocurrency.

It's worth noting that the fund doesn't stake ￰12￱ share of the ETH ETF represents a fraction of the Ether held by the fund's custodian, Coinbase ( COIN ). So, in theory, the ETF should closely mimic the price of ETH-USD, and it ￰13￱ the past year, the ETH ETF has returned 56.4%. ETH ETF Chart (TradingView) And ETH-USD has returned 57.7% in the past year (see the chart below). You probably noticed the 1.3% difference in return, but that can likely be explained by the fact that we're comparing an asset that's traded during market hours ￰14￱ that's traded all day.

So, there will be some variation ￰15￱ expense ratio also plays a role, but hardly since it's quite low at 0.15%. ETH-USD Chart (TradingView) The point is that it tracks ETH-USD quite well, and as of September 23, it trades exactly at its NAV per share, so you're paying a fair price for the ETH-USD ￰16￱ ETF NAV ( Grayscale ) What's the Difference Between the Two Grayscale Ethereum Funds? You may have noticed that there's the Grayscale Ethereum Mini Trust ETF and also the Grayscale Ethereum Trust ETF ( ETHE ), so what gives? Both funds hold ETH and track its price, but the Grayscale Ethereum Trust is the older product and began trading over-the-counter before Ethereum ETFs were ￰17￱ charges a 2.5% annual fee, making it much more expensive than the ETH ETF.

That's why the Mini Trust is much more appealing for long-term ￰18￱ ETF's Expense Ratio is Best-in-class I like the ETH ETF over the other Ethereum ETFs because it has the lowest expense ￰19￱ ratios of Ethereum ETFs range from 0.15% (what ETH charges) to 2.5%. The largest Ethereum ETF is the iShares Ethereum Trust ( ETHA ), and that one is good, too, with its 0.25% fee, but it's still slightly higher than ETH's 0.15%. Expense Ratios of Ethereum ETFs ( NerdWallet ) I'd only advise ETHA over ETH for any of these reasons: 1) if you just trust iShares more than Grayscale or 2) if you need the highest amount of liquidity (especially if you're an options trader, as ETHA has way more options contracts traded, so liquidity is better).

Still, the ETH ETF has around $3.3 billion in total assets, so there's plenty of liquidity there for most ￰20￱ bid/ask spreads of the two ETFs were also similar today at around 0.03%, so there's no hidden bid/ask fee ￰21￱ least not when I checked. Now, let's get into why I think Ethereum exposure is worth ￰22￱ I Like About Ethereum: Two Key Catalysts for the Long Term Catalyst #1: Stablecoin Usage Growth One of the biggest catalysts for Ethereum is the rise of ￰23￱ digital tokens, often pegged to the US dollar, are like the digital cash of the ￰24￱ good thing for Ethereum is that many of the major stablecoins run on Ethereum's network. Here's how it can benefit the price of ￰25￱ transaction on Ethereum requires gas fees paid in ￰26￱ stablecoins on the network mean more transactions, more fees, and more demand for ETH as a ￰27￱ of September 22, $172.33 billion worth of stablecoins were circulating on ￰28￱ year earlier, that number was $95.86 billion, meaning the stablecoin supply on Ethereum has increased by 79.8% year-over-year.

That's an impressive growth rate, and you can see it visualized in the image ￰29￱ Ethereum Stablecoin Supply ( The Block ) Interestingly, the Ethereum stablecoin supply really started to take off after the GENIUS Act was signed into law on July 18, considering that it was relatively flat for several months before that. I stated earlier that many of the major stablecoins run on the Ethereum ￰30￱ graph below shows that the total stablecoin supply is $279.65 billion (as of September 22, which you can see here ). Compare that to the $172.33 billion worth of stablecoins on Ethereum, and you get a 61.6% market ￰31￱ Stablecoin Supply ( The Block ) In addition, Stablecoins aren't just for crypto traders who want to move in and out of traditional cryptos quickly.

They're also being embraced by institutions and governments for ￰32￱ passage of the GENIUS Act was a turning point, making stablecoins more "legit" in a sense. Essentially, the US Treasury can now regulate stablecoins in a way that encourages innovation but also consumer protection and stability. Unfortunately, many of the "early" gains from the GENIUS Act have already been ￰33￱ example, on June 26, a Seeking Alpha article from Node Analytica Research titled "ETHA: The Stablecoins Catalyst" perfectly highlighted the stablecoin catalyst, and since then, the ETHA ETF has returned 70%. Props to you, Node Analytica Research!

Either way, while some easy gains are now out the window, the longer-term picture is still very bullish, as the clarity from the GENIUS Act has accelerated stablecoin adoption, and this probably isn't just going to ￰34￱ fact, Treasury Secretary Scott Bessent posted this on X on June 17 : Recent reporting projects that stablecoins could grow into a $3.7 trillion market by the end of the ￰35￱ scenario becomes more likely with passage of the GENIUS Act. That's not just a random ￰36￱ came from the Treasury ￰37￱ a stablecoin supply near $280 billion, there's plenty of upside potential in just five years if Scott Bessent is correct. Ethereum's first-mover advantage (and the fact that it's the largest of its kind) makes it the default platform for stablecoins.

Notably, McKinsey estimates that stablecoin transaction volumes can reach $250 billion per day. Specifically, an article from ￰38￱ mentioned: McKinsey pegs current real-world stablecoin activity at roughly $20 to $30 billion per day and outlines a path to at least $250 billion within three years as merchant acceptance and B2B payouts scale on low-fee rails. So, again, there's potential ￰39￱ #2: Tokenization Tokenization is another catalyst for ￰40￱ refers to taking assets like Treasuries, corporate bonds, real estate, and more and creating digital versions of them on the ￰41￱ tokens can then be traded or used as collateral , with instant settlement and full ￰42￱ can also speed up and simplify the movement of ￰43￱ image below shows the difference between a traditional money market fund and a tokenized money market ￰44￱ ￰45￱ Money Market Fund ( Franklin Templeton ) And this isn't just fantasy ￰46￱ Templeton already has a tokenized money market fund on Ethereum , and BlackRock ( BLK ) has its own tokenized ￰47￱ fund on ￰48￱ are a few articles from mid-August stating that tokenized assets under management have already reached $270 billion, with Ethereum having a 55% market share of tokenized ￰49￱ growth projections are crazy to think about.

Here's one: the Deloitte Center for Financial Services forecasts that there will be $4 trillion of tokenized real estate 10 years from now, compared to under $300 billion in 2024, for a 27% ￰50￱ that's just real estate. A projection from Standard Chartered states that the overall tokenized asset market can reach ~$30 trillion by 2024. There's no doubt that these estimates can be over-optimistic, but even if half the expected growth rate is achieved, that's still quite ￰51￱ way, I think it's hard to ignore the growth in tokenization ￰52￱ even if Ethereum captures only a fraction of the tokenization market, it can still translate to trillions of dollars' worth of assets running through the Ethereum ￰53￱ key difference between tokenization and the NFT bubble from a few years ago is that tokenized assets solve real problems for institutions (I was never a fan of speculative NFTs).

Tokenized Treasuries settle in real time on the blockchain, compared to the next-day (also known as T+1) clearing process in traditional markets. Moreover, tokenized real estate even allows fractional ownership , making real estate investing much more ￰54￱ Risks Despite long-term catalysts, Ethereum is still a risky investment by traditional standards. It's highly volatile and can sometimes be driven by retail investor sentiment rather than fundamentals, so you need to be able to stomach that. Additionally, ETH-USD has a history of brutal drawdowns. 50-80% drawdowns are not unheard of from peak to ￰55￱ now, we're only about 15% off the recent all-time ￰56￱ if the long-term trend is up, we can't ignore that there's a resistance level on the chart from 2021 that needs to be decisively ￰57￱ not to mention, $5,000 is a major psychological level that we haven't gotten past yet.

ETH-USD Chart (TradingView) Competition is another risk worth ￰58￱ is currently the leader, but that doesn't necessarily mean it will always be the leader. A notable competitor is Solana ( SOL-USD ), with its better speed and lower transaction fees . Ethereum's network effects are strong, but if it fails to keep pace on speed, cost, or developer experience, it could lose market share. Nevertheless, layer-2 scaling solutions like Arbitrum and Optimism are helping Ethereum remain competitive, but that also brings me to my next risk.

A sometimes-overlooked risk is that while Ethereum itself could become crucial to the digital economy, the price of the Ether token may not rise as much as some expect it ￰59￱ is that the case? Well, currently, transaction fees on the Ethereum network are paid in ￰60￱ more people use the Ethereum network, the more Ether gets used (and burned), which can support a price increase. However, since Ethereum needs to become faster and cheaper to use, it uses something called layer-2 ￰61￱ is a double-edged ￰62￱ becomes more efficient, but it also means fewer ETH tokens are burned or spent per ￰63￱ short, there's a possibility that the Ethereum network could grow rapidly, while the demand for Ether itself lags ￰64￱ Bottom Line on the ETH ETF Ether isn't just a speculative asset ￰65￱ Ethereum network is becoming increasingly important for financial ￰66￱ usage is growing quickly, as is tokenization, and the regulatory backdrop is ￰67￱ of dollars' worth of assets could potentially be running through the Ethereum network in a decade or so.

That's why I'm bullish on Ether in the long term, and the Grayscale Mini Ethereum Trust ETF is currently the lowest-cost ETF to gain exposure to the cryptocurrency, leading me to give it a Buy ￰68￱ being said, competition and a chart near resistance are worth considering. Also, while there's a chance that Ethereum's success doesn't fully translate into Ether token price gains, I believe Ether will still play a central role in the ecosystem and is worth betting ￰69￱ staking, collateral use in DeFi, and continued demand for gas even on Layer 2s, demand for Ether can remain ￰70￱ weighing the pros and cons carefully, my final analysis is this: ETH looks good for a starter position, but I caution investors against being overly aggressive right ￰71￱ in slowly, and buy on dips for the long term, as the tailwinds are hard to ignore.