One Month On, Have Spot Ethereum ETFs Been a Success?

There are many factors that make Ethereum a fundamentally different cryptocurrency from Bitcoin, and these crucial differences are playing out in real-time on Wall Street.

Unlike the US Securities and Exchange Commission’s approval of Bitcoin ETFs in January, July’s acceptance of spot Ethereum ETFs came as something of a surprise. The commission had long viewed Bitcoin as an exception in the crypto landscape, acknowledging other coins as ‘securities’ compared to BTC’s status as a commodity.

Despite this, Tuesday, July 23, 2024, saw the launch of nine spot Ether exchange-traded funds on Wall Street. One month on, are market commentators ready to call the debut a success?

Ether’s Mixed Results

Investor sentiment for the new ETFs has been mixed. The brightest spot Ether ETF, BlackRock’s iShares Ethereum Trust ETF, has been well on course to surpass $1 billion in net inflows just one month on from its launch.

Elsewhere, other funds have been less lucrative in terms of welcoming inflows. In fact, the fund with the second highest level of inflows is Fidelity’s Ethereum Fund, with less than $400 million recorded one month after launching.

The elephant in the room is Grayscale’s Ethereum Trust, which has recorded significant outflows due to its relatively high fee structure. With nearly $2.5 billion in outflows from this ETF, the total cumulative flow for Ether ETFs is negative by almost $500 million.

Bitcoin Comparisons are Hasty

According to estimates from Bloomberg ETF analyst Eric Balchunas, the demand for spot Ethereum ETFs could settle at around 15% to 20% of what we’ve seen for Bitcoin ETFs.

There are many reasons why Ethereum commanding around one-fifth of Bitcoin’s ETF market inflows is logical. Firstly, as the oldest and most popular cryptocurrency in the world, Bitcoin has fewer technological capabilities than Ether, making it more comparable to gold.

Meanwhile, Ethereum’s newer, more advanced blockchain frameworks mean it can host decentralized finance (DeFi) projects and other emerging technologies, making it more comparable to oil. At least this is the view of the Industrial and Commercial Bank of China (ICBC).

Despite this, Bitcoin’s ETFs have also been vulnerable to substantial outflows of late, owing to a larger contraction of the cryptocurrency market and Wall Street’s recent stock sell-offs in early August.

Crucially, Bitcoin’s status as ‘digital gold’ and the cyclical nature of the coin’s halving events, making the asset marginally more predictable, mean that its ETFs are more likely to see major institutional inflows like the $600 million Goldman Sachs and Morgan Stanley invested in spot Bitcoin ETFs.

Battling ETH’s Downturn

While the launch of Bitcoin’s ETFs brought a subsequent cryptocurrency rally towards a fresh all-time high value for BTC, no such good fortune appears forthcoming for Ether.

In fact, the cryptocurrency has fallen 26% since its exchange-traded funds launched on Wall Street, with the coin’s supply increasing by 60,555 over the same period.

Unlike Bitcoin’s fixed supply, which means no more than 21 million BTC can ever be minted, no such limits exist for Ether, meaning that its scarcity won’t play the same role in determining its value as Bitcoin.

Although it’s worrying to see Ether struggle in the wake of net outflows for spot Ethereum ETFs, Aurelie Barthere, principal research analyst at analytics platform Nansen, highlights that Bitcoin has also been falling significantly over the same period, indicating that Ether’s downturn is more likely related to falling risk appetite among investors.

It’s also worth noting that Wall Street’s market crash in early August was another challenge that Bitcoin didn’t have to encounter during its strong post-ETF rally in early 2024.

Ethereum’s Unique Challenges

Unlike Bitcoin, which enjoys a market dominance of more than 56% throughout the cryptocurrency landscape, Ethereum’s status as the world’s biggest altcoin is far from assured in the long term.

Since its 2015 launch, Ethereum has relied on its status as a popular, technically advanced blockchain that developers use to host their DeFi projects. This has made ETH a cryptocurrency that’s closely linked to the burgeoning NFT landscape and blockchain innovations like smart contracts and P2P lending.

However, now that the asset is approaching its 10th birthday, there are many newer, more advanced blockchains that offer faster transaction speeds and lower costs than Ethereum. Because of this, Ethereum is constantly having to evolve to fend off the chasing pack, a challenge that Bitcoin has never needed to counter.

One specific threat can be found in Solana. With far lower transaction fees, less network congestion, and its innovative Proof-of-History consensus mechanism, Solana could be a tangible long-term threat to Ethereum, making investing in its ETFs a riskier prospect.

Despite this, we may actually see Ethereum’s spot ETF act as a driving force for maintaining its status as a leader in blockchain technology. With long-term Wall Street adoption, even if it’s at 20% the scale of Bitcoin, Ethereum’s institutional acceptance could help to see off its plucky challengers throughout the crypto landscape.

“Institutional investors familiar with ETFs as a financial instrument may be more inclined to invest in Ethereum through these funds,” highlights Maxim Manturov, head of investment research at Freedom24. “This could lead to substantial capital inflows and further growth and development of the Ethereum ecosystem.”

Have Spot Ethererum ETFs Been a Success?

The flows surrounding spot Ethereum ETFs one month from their launch make for difficult reading. However, it’s worth noting that the exchange-traded funds had the misfortune of launching just weeks before a major market crash occurred.

For investors looking to embrace Ether on Wall Street, we may see spot Ethereum ETFs act as a strong foundation for growth that sees Ethereum fend off its technical competitors and reaffirm its status as the cryptocurrency landscape’s most functional altcoin.

With expectations of a cryptocurrency market bull run in late 2024 and early 2025 still high, the success of spot Ethereum ETFs could be realized a little later down the line. For now, we’re still waiting for investors to really embrace this risky altcoin play.