Despite near-term bearish sentiment, the structural adoption cycle remains intact and crypto would become the primary “Trump trade” if election sentiment shifts more Republican, according to analysts at research and brokerage firm Bernstein.

“After months of Bitcoin BTC -0.42% ETF euphoria, the market suddenly feels bearish,” Gautam Chhugani and Mahika Sapra wrote in a note to clients on Monday. The analysts cited two primary arguments for this related to recent spot Bitcoin exchange-traded funds outflows and the prospect of a potentially disappointing spot Ethereum ETH -0.45% ETF launch.

The spot Bitcoin ETFs have witnessed substantial success overall, generating more than $14 billion worth of net inflows combined since their launch in January — the principal catalyst behind bitcoin’s 75% rise in the first quarter, according to the analysts. However, the funds are currently on a six-day streak of consecutive $100 million-plus net daily outflows totaling nearly $1 billion.

Some of the Bitcoin ETF inflows were driven by the basis trade between CME futures and the spot Bitcoin ETFs, suggesting that real demand-led inflow could be much smaller. However, “adoption is adoption,” the analysts argued, and has contributed to rising liquidity for the ETFs regardless of the rationale.

“There may be a temporary pause, before the large private bank platforms whitelist the Bitcoin ETFs. This is the real game-changer for portfolio allocations towards Bitcoin, beyond simply the basis trade,” they added. “We expect these approvals to come through in Q3/Q4 and until then the markets would drag. With Bitcoin ETFs being a mere 0.1-0.20% of existing wealth advisors sample, there is headroom in both new advisors penetration and growing allocations (up to 2-3% of portfolios vs. 0.1-0.2% today).”

Ethereum ETFs a ‘non-event’?

The other bearish argument is that the spot Ethereum ETFs launch is going to be a “non-event,” Chhugani and Sapra said, with disappointing flows compared to their Bitcoin counterparts. However, while the Ethereum ETFs may not see as much spot conversion due to the lack of a staking feature, the analysts still expect the same sources of demand as for Bitcoin ETFs, just at a lower scale.

The U.S. Securities and Exchange Commission approved 19b-4 forms for eight spot Ethereum ETFs from firms like BlackRock and Fidelity on May 23. However, the issuers still need to have their S-1 registration statements become effective before trading can begin.

Ethereum also lacks a clear narrative, unlike Bitcoin’s “digital gold,” according to the analysts, with “decentralized computing or web3 app store” descriptions being “stale.”

Ethereum as a tokenization platform is a much stronger use case, the analysts said, both for stablecoin payments and real-world assets. But it needs improved regulatory clarity, something that can improve under a Republican presidential victory in November, with the Trump camp now overtly “pro-crypto,” they added.

“Thus, ETH ETFs may be weak initially, but if the election sentiment shifts more Republican, crypto would end up as the primary ‘Trump trade’ and hopes of a favourable regulatory regime would change the ‘use-case’ narrative around blockchains such as ETH,” Chhugani and Sapra said.

“We believe the new crypto bull cycle is a multi-year opportunity, and the near term weakness may be another opportunity to find attractive entry levels,” they concluded.

Last week, the Bernstein analysts predicted spot Bitcoin ETFs were nearing approval at major wirehouses, maintaining a $200,000 bitcoin price target by the end of 2025.