TLDR
- Ethereum ETFs had net outflows of $341 million in their first week, while Bitcoin ETFs had net inflows of $1.31 billion in their first week.
- Grayscale’s ETHE fund saw massive outflows of $1.15 billion, driving the overall negative trend.
- High fees and lack of staking yield are cited as reasons for Ethereum ETF underperformance.
- BlackRock’s ETF ETHA was the most popular Ethereum fund with $442 million in inflows.
- Analysts predict Grayscale’s ETH ETF outflows could slow down soon, potentially boosting ETH price.
The launch of Ethereum Exchange Traded Funds (ETFs) last week was met with mixed results. Unlike their Bitcoin counterparts, which saw strong inflows in their first week of trading, Ethereum ETFs experienced net outflows of $341 million.
These new ETFs, approved by the Securities and Exchange Commission (SEC), include offerings from major financial firms like BlackRock, Fidelity, and Grayscale.
While they generated significant trading volume of $4.05 billion in their first four days, the overall flow of funds was negative.
The Ethereum ETF net outflow is yet to subside, but it is likely that it will happen this week. When it does, it's up only from there. pic.twitter.com/mJqbcyUTp5
— Mads Eberhardt (@MadsEberhardt) July 29, 2024
The main driver behind this trend was Grayscale’s ETHE fund, which saw massive outflows of $1.15 billion. This reduced its assets under management from $9 billion to $7.85 billion in just a few days.
Analysts attribute this to ETHE’s high management fee of 2.5%, which is much higher than competitors offering fees as low as 0.12% to 0.25%.
Despite the overall negative trend, some Ethereum ETFs did see positive inflows. BlackRock’s ETHA was the most popular, bringing in $442 million. Bitwise’s ETHW and Fidelity’s FETH also saw significant inflows of $265 million and $219 million respectively.
One factor that may be holding back Ethereum ETFs is the lack of staking yield. The SEC did not allow these ETFs to include staking, a key feature of the Ethereum blockchain that can provide additional returns.
This means ETF holders miss out on potential yields of 3-5% compared to directly holding Ethereum.
However, some analysts remain optimistic about the future of Ethereum ETFs. Mads Eberhardt, a senior analyst at Steno Research, predicts that the outflows from Grayscale’s ETHE could slow down soon.
He points out that a similar pattern was seen with Bitcoin ETFs, where outflows peaked and then subsided, leading to a significant price increase for Bitcoin.
Have a look at the two ETF launches side by side
BTC ETF (0 on x-axis = Jan 10th):
-bottomed on Day 12 (Trading Day 7)
-bottom occurred at ~21.5% off local peak
-bottom occurred at cumulative Grayscale outflows of ~13.2%
-proceeded to rip ~92% in 50 daysETH ETF (0 on x-axis =… pic.twitter.com/jsmcYu0UD0
— Evanss6 (@Evan_ss6) July 29, 2024
Samara Cohen, BlackRock’s investment chief for ETF and index investments, notes strong demand for Ethereum exposure from institutional investors. She expects crypto-based ETFs to be included in model portfolios by the end of 2024, which could boost their adoption.
The launch of Ethereum ETFs is still in its early stages, and it’s too soon to draw definitive conclusions. While the initial week saw challenges, particularly with outflows from the Grayscale fund, other ETFs in the space are seeing positive inflows.
The market is still adapting to these new investment vehicles, and their performance may change as investors become more familiar with them.
