$ETH spot ETFs

Is it what you expected that it would be? Or are you rather disappointed with how this $ETH spot ETF market develops? Some good questions that I also want to have answered. The $ETH spot ETFs launched in July 2024. So, it would be fair to give them some time and see how they do.

However, the honeymoon period is over, and it’s time to show some results. Unfortunately, the results don’t look that great. Outflows dominate over inflows. This is in contrast to the $BTC spot ETFs. They have a net positive inflow. So, let’s take a closer look at what’s going on with the $ETH spot ETFs.

$ETH Spot ETFs History

Let’s put the development of the $ETH spot ETF in perspective. So, it’s good to look back at how this spot ETF came into being. Now, the SEC isn’t the most crypto-friendly US government institution. Nonetheless, in a surprise move, in January this year it approved $BTC spot ETFs.

This move also spurred interest in an $ETH spot ETF. No surprise there, as $ETH is the second-biggest asset measured by market cap. As a result of the $BTC spot ETF approval, both $BTC and $ETH rallied.

$ETH went from $2,219 on 26th January to $4.070 on March 12th. $BTC had a similar rally, from $39.938 to a new ATH on 14th March of $73.737. However, both lost steam from those moments onward. The current $ETH price is $2.512. It lost more ground than $BTC.

Back to the SEC. In an even more surprising move, in May, it approved no less than 9 $ETH spot ETFs funds. These began trading in July 2024.

Now, as you may know, a spot ETF is a regulated investment tool. It allows you to trade in the underlying asset, without having to own it. Especially in the world of crypto, that can be convenient. If you buy a spot ETF, you don’t need a crypto wallet. For many people, these are still a hurdle.

There’s also no need to hold the underlying asset. The spot ETF fund manager holds the underlying asset. For example, if they sell for $100 million worth of $ETH spot ETFs, they need to hold at least $100 million of $ETH. It’s like collateral.

Spot ETFs tend to target institutions. So, that’s good news. However, retail can also buy these $ETH spot ETFs.

Reasons Why $ETH Spot ETFs Are Slow

There are various reasons why $ETH spot ETFs are slow. So, it’s time to look at these reasons.

  • Staking — You can stake $ETH and receive 1-5% APY on your staked $ETH. However, you can’t stake an $ETH spot ETF. So, $ETH spot ETF holders lose out on this extra, passive income.
  • The ETH/BTC chart — This chart is down 50% over the last 2 years.
  • Decreased user activity. — Many former Ethereum users move to L2s or other, cheaper and faster L1s. For example, the $SOL/$ETH chart is up by 346%. 
  • $ETH became inflationary —It was deflationary for a while, but not anymore. Ethereum mints more $ETH than it burns.

$ETH spot ETFs

Source: CoinGecko

  • $ETH max supply — The $ETH max supply has no limit. If there’s enough demand, $ETH can mint more to meet that demand. This is in contrast to Bitcoin, which has a finite supply of 21 million $BTC. 
  • Fee revenue — Ethereum recently saw the proto-danksharding upgrade. This reduced Layer 2 transaction fees even more. As a result, Ethereum generates less revenue.
  • $ETH spot ETF outflows — As already mentioned, there’s a net deficit between in- and outflows.

So, as you can see, there’s a lot going on at Ethereum. It’s also not all positive news. It also doesn’t help if Vitalik Buterin transfers 800 $ETH worth $2 million USD to a multisig wallet. Raising even more reasons for speculation of why he did this.

Are the $ETH Spot ETFs a Failure?

So, we come to the part to see if the $ETH spot ETF is a failure. I just mentioned plenty of reasons that can or have influenced the reason this spot ETF is slow. The main indicator is the in- and outflow in all the 9 Funds. We see a net negative inflow of $477 million USD.

However, the main culprit is the Grayscale Ethereum Trust ($ETHE). That fund alone has a negative outflow of $2.56 billion USD. The other 8 fund managers all have positive inflows. Actually, totaling a positive net inflow of $2.083 billion. That’s rather shocking, isn’t it?

So, what is the reason for this massive outflow at the Grayscale Ethereum Trust? Well, it is rather simple. Grayscale’s fee is 2.5%. That’s 10x more than the next most expensive fee. All other fees range between 0.15% and 0.25%. People and institutions tend to choose, not with their feet, but with their wallets.

$ETH spot ETFs

Source: SosoValue

So, what does this mean? Can we call the $ETH spot ETF a failure? It looks like you may have to hold your horses here. 

For example, we saw the Black Monday event in early August. $ETH lost around $100 million from its market cap. Its price has been struggling since mid-March. Nonetheless, demand for the $ETH spot ETF remained solid. Many see this as a long-term success indicator. 

These $ETH spot ETFs could well be a slow burner. Get rid of all the noise, and it shows that they’re performing rather well. So, what do you think of these $ETH spot ETFs? Are they a failure or not?

Disclaimer

The information discussed by Altcoin Buzz is not financial advice. This is for educational, entertainment and informational purposes only. Any information or strategies are thoughts and opinions relevant to accepted levels of risk tolerance of the writer/reviewers, and their risk tolerance may be different from yours.

We are not responsible for any losses that you may incur as a result of any investments directly or indirectly related to the information provided. Bitcoin and other cryptocurrencies are high-risk investments, so please do your due diligence.

Copyright Altcoin Buzz Pte Ltd.

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