Spot Ethereum exchange-traded funds (ETFs) have experienced seven consecutive days of outflows, shedding over $5.7 million in assets as of Friday, August 23. This brings the cumulative outflows to $464 million, according to data from SoSoValue. Despite this, the cumulative net assets locked in Ethereum (ETH) ETFs still stand at approximately $7.65 billion, with the Grayscale Ethereum Trust leading the pack with $5 billion in assets, followed by the Grayscale Mini Ethereum Trust with $1.01 billion.
Institutional Investors’ Reluctance
One key reason behind the lagging inflows is institutional investors’ preference for Bitcoin ETFs over Ethereum. Crypto analyst Noelle Acheson, in a note to Bloomberg, highlighted that many institutional investors are hesitant to invest in Ethereum ETFs, instead opting to focus on Bitcoin for their diversification strategies. Acheson anticipates that Ether ETFs will see increased inflows in the future, drawing a parallel to the metals industry where gold ETFs hold over $100 billion in assets, while silver ETFs hold less than $20 billion.
Opportunity Cost and Staking
Another factor contributing to Ethereum ETFs’ struggles is the opportunity cost associated with holding ETFs compared to directly buying Ether. Investors who purchase the cheapest Ether ETF, such as the Grayscale Mini Ethereum, face a small expense ratio of 0.15%. However, they miss out on the potential earnings from staking Ether directly. According to StakingRewards, staking Ethereum yields about 3%, or $300 for a $10,000 investment. With Ethereum’s net staking inflow rising in 20 of the last 30 days and reaching over $93.7 billion, many investors are choosing to hold Ether directly rather than through ETFs, which only track Ethereum’s price.
Ethereum’s Underperformance Compared to Bitcoin
Another significant reason for the lagging inflows into Ethereum ETFs is Ethereum’s underperformance compared to Bitcoin this year. Bitcoin has risen by over 45%, while ETH has increased by less than 20%. This disparity in performance is partly due to Ethereum facing stiff competition from other blockchain networks like Solana (SOL) and Tron (TRX). Tron has become a major player in stablecoin transactions, handling daily volumes of over $40 billion. Similarly, Solana has gained substantial traction due to the popularity of its meme coins, and in July, it was the largest chain in decentralized exchange (DEX) volumes, processing over $58 billion.
Implications for Altcoin ETFs
The underperformance of Ethereum ETFs may serve as a cautionary signal for financial services companies considering launching ETFs for other altcoins like Solana and Avalanche. The challenges faced by Ethereum ETFs underscore the broader competitive landscape within the cryptocurrency market and the importance of evaluating both the underlying assets and their market dynamics.
As Bitcoin continues to outperform, and as other blockchains like Solana and Tron make significant inroads, Ethereum ETFs may continue to face headwinds unless broader market conditions shift in their favor.
Powered by Crypto Expert BD
Follow us on Twitter: https://x.com/CryptoExpert_BD
Join our Telegram channel: https://t.me/CryptoExpert_BD
