After the Ethereum ETF is approved, the altcoin season may officially arrive

The Significance of Ethereum ETF

The launch of the Ethereum ETF is an important sign of mainstream financial markets' recognition of cryptocurrencies. An ETF (Exchange-Traded Fund) as an investment tool allows investors to indirectly hold crypto assets without the need to directly purchase and store the actual cryptocurrencies. This lowers the barrier to entry for traditional investors while providing a safer and more compliant investment avenue.

Before the Ethereum ETF, the successful launch of the Bitcoin ETF had already paved the way for this process. As of now, the net inflow of funds into Bitcoin ETFs has exceeded $17 billion, directly driving up the price of Bitcoin. However, Bitcoin's performance has not triggered a comprehensive recovery of the overall crypto market, mainly because the investors holding Bitcoin are primarily institutions and large holders who are less likely to reinvest their profits into the altcoin market.

The Uniqueness and Potential Impact of Ethereum ETF

Unlike the Bitcoin ETF, the inflow of funds into the Ethereum ETF may trigger a series of positive feedback loops, having a broad impact on the entire crypto market. Here are the possible chain reactions:

1. Increase in Ethereum Price: The inflow of ETF funds will push up the price of Ethereum. Since Ethereum is the underlying asset for many DeFi (Decentralized Finance) protocols, the rise in ETH price will directly increase the dollar value of the TVL (Total Value Locked) in these protocols. For example, major DeFi platforms like Uniswap and Aave typically see an increase in their total locked value when ETH prices rise, thereby enhancing the stability and attractiveness of their ecosystems.

2. Activation of the DeFi Ecosystem: As TVL increases, the yields and fees of DeFi protocol native tokens will also rise. This increase in yields enhances the fundamental value and market price of these tokens, attracting more investors to focus on DeFi projects. Governance tokens of platforms like Compound and SushiSwap often see price increases when ETH prices rise, indicating that investors' expectations for these tokens' returns have increased to some extent.

3. Emergence of New Tokens and Liquidity Mining: The rise in DeFi token prices will reignite market interest in DeFi, leading to the issuance of new tokens and the emergence of liquidity mining activities. This situation will not only drive more ETH purchases but also increase its locked amount in smart contracts, further enhancing on-chain activity. A typical example is Yearn Finance, which helps investors optimize yields through automated liquidity mining strategies; the popularity of such strategies may become more pronounced when ETH prices rise.

4. Increase in On-Chain Activity: An increase in on-chain activity is usually accompanied by the burning of ETH and an increase in staking rates, which will further drive the growth of its fundamental value. The implementation of EIP-1559 has caused a portion of ETH transaction fees to be burned, directly reducing the supply of ETH in the market and driving up its value. As Ethereum prices rise, existing ETH holders may turn to invest in altcoins in search of higher returns, further promoting the development of the altcoin market.

Potential Explosion of the Altcoin Market

The approval of the Ethereum ETF may create conditions for an explosion in the altcoin market. Unlike the Bitcoin ETF, there are numerous decentralized applications and projects within the Ethereum ecosystem, and the success of these projects relies on the value of ETH. As ETH prices rise, the native tokens of these projects and other related assets will also appreciate.

First, there is the participation of institutional investors. While institutional investors have already taken a significant position in the Bitcoin market, their interest in Ethereum and altcoins may be even greater. As the foundation of a smart contract platform, ETH has broader application potential, while the altcoin market offers diversified investment opportunities, including emerging fields like DeFi and NFTs (Non-Fungible Tokens). The participation of institutional investors will not only increase market liquidity but may also bring higher market stability and confidence.

For example, competitors to Ethereum such as Polygon and Solana may also see their native tokens attract investor attention as ETH prices rise. The low cost and high efficiency offered by these platforms have attracted many projects and developers, making them an alternative outside of Ethereum.

Moreover, although the BTC price has risen under the influence of the Bitcoin ETF, the market has not exhibited the multi-point flowering seen in the bull markets of 2017 or 2021. The approval of the Ethereum ETF may change this situation, sparking more investor interest and driving the overall prosperity of the altcoin market. This multi-point flowering market performance is beneficial not only for the launch of new projects but also for attracting new investors into the market. The NFT market on Ethereum has already demonstrated this potential. For instance, trading volume and activity on platforms like OpenSea significantly increased during periods of rising ETH prices, showcasing ETH's broad influence on the entire crypto ecosystem.

Future Outlook

With the successful launch of the Ethereum ETF, the regulatory environment may also change. The attitudes and policies of governments and regulatory agencies toward the cryptocurrency market will have a significant impact on market trends. Although the launch of the ETF indicates an increasing acceptance of cryptocurrencies in mainstream financial markets, it may also trigger stricter regulatory measures. For example, agencies like the U.S. Securities and Exchange Commission (SEC) may strengthen their oversight of cryptocurrencies, particularly in preventing market manipulation and protecting investors. Regulatory bodies in Europe and Asia are also tightening their oversight of cryptocurrencies, which may have a ripple effect on the global market.

On the other hand, as the market recovers and ETH prices rise, retail investor participation may also increase. Especially after ETH reaches new all-time highs, retail investor interest may be reignited, further boosting market activity. This has been proven in past market cycles; for example, during the bull market of 2017, the influx of retail investors caused both market sentiment and prices to soar.

The launch of the Ethereum ETF is not only a significant event for the crypto market but may also serve as a catalyst for the explosion of the altcoin market. As funds flow into ETH, driving the growth of DeFi and other crypto projects, the entire crypto ecosystem is expected to enter a new period of prosperity. However, this growth also comes with challenges. The market's high volatility, potential regulatory risks, and uncertainties at the technical level may all impact market development.

Investors and market observers should closely monitor this dynamic to seize potential investment opportunities and market changes. Particularly when considering investments in altcoins, attention should be paid to the fundamentals of the projects, the strength of the teams, and the overall market trends. Additionally, as the crypto market continues to mature, education and information transparency will become increasingly important to help investors make informed decisions.

Overall, the approval of the Ethereum ETF may become a significant milestone for the cryptocurrency market, marking further maturation and mainstreaming of the market. For those focused on long-term growth and innovation, this is undoubtedly an exciting moment filled with opportunities and challenges.