The introduction of spot Ethereum exchange-traded funds (ETFs) has not soared as high as the expectations surrounding Bitcoin ETFs. Industry analysts are probing into the reasons for this underperformance. Since their launch on July 23, the collective withdrawals from all spot ETH ETFs amount to $463 million, per data from Farside Investors. Notably, Grayscale’s ETHE leads the pack with outflows of $2.996 billion, whereas BlackRock and Bitwise saw inflows of $1.258 billion and $321 million, respectively.
Understanding the Underperformance of Spot Ethereum ETFs
Hunter Horsley, the CEO of Bitwise Asset Management, took to X to discuss the reasons behind the slower uptake of U.S. spot Ether ETFs. He pointed out that when assessing their success, we must consider how many of the new exchange-traded products (ETPs) are actually growing. “The ETPs from iShares, Fidelity, and Bitwise are among the top 25 fastest-growing new ETPs of the year,” he stated.
Despite their rapid growth, several factors hindered a successful introduction of spot Ethereum ETFs. One key issue was the timing of their release during the summer months, a period typically marked by lower investor activity as many “monitor but don’t engage in new projects.”
The overall market environment also played a role; “Bullish markets attract attention. Bitcoin ETPs debuted when Bitcoin was rising, while Ether ETPs launched in a stagnant market,” which may have affected investor enthusiasm.
Moreover, following the introduction of Bitcoin ETFs with the launch of Ethereum ETFs may have inundated investors trying to grasp the new asset landscape. Horsley remarked that traditional investors have needed time to adapt to Bitcoin’s integration following its ETP launch, making it challenging to focus on Ethereum.
Meanwhile, Nate Geraci, President of The ETF Store and co-founder of the ETF Institute, noted that crypto-related ETFs as a whole are faring well in 2024. He mentioned, “Out of 525 ETFs launched this year, 13 of the top 25 are related to Bitcoin or Ether, including the top four that are all focused on spot Bitcoin.” He sarcastically termed this scenario as a “masterpiece of ‘no demand.’”
In a different perspective, Christopher Perkins, President of CoinFund, suggested that introducing yield-generating products could boost their attractiveness. He highlighted that a product offering total return ETH could be a game changer. While Horsley acknowledged the merit of staking, he softened its expected immediate influence on ETF performance, recognizing it as valuable nonetheless. “We also have a growing ETH ETP with staking in Europe,” he added.
Horsley further stated, “A lack of staking yield isn’t a major concern. A significant portion of ETH is directly owned and could be staked, yet about two-thirds are not. But it’s a point worth noting.”
Dan Tapiero, the founder and CEO of 10T Holdings, shared an optimistic outlook for spot Ethereum ETFs, expressing confidence that they will thrive in due time. Horsley echoed this sentiment, simply agreeing with Tapiero’s perspective.
As of the latest update, ETH is trading at $2,705.
