Shift in Sentiment: The Declining Investor Interest in Ethereum Spot ETFs

2024-09-04, 03:10

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## [TL; DR]
The ETH ETF sector experienced much net capital outflow within the first month of trading.

Competition between <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> ETFs and ETH ETFs may have led to much capital outflow from <a href="/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> ETFs.

The SEC has excluded the staking component from ETH ETFs.

## Introduction 
The spot Ethereum ETFs, debuted on 23 July, have not performed as their counterpart the spot bitcoin ETFs, launched in January. After their launch early this year the US-listed BTC ETFs attracted much capital inflows. Up to now, these bitcoin derivatives are still popular among investors. Nevertheless, the same cannot be said about spot ETH ETFs, recently listed in the United States. They have recorded much outflows since their launch in July.

## Performance of U.S Listed Spot ETH ETFs
Although there was much enthusiasm about Ethereum spot ETFs their performance has been below par. In the past few weeks the Ethereum spot ETFs [have recorded massive outflows](https://www.gate.io/post/CryptoNews_/status/6738646 "have recorded massive outflows") which has also weighed heavily on the <a href="/price/ethereum-eth" target="_blank" class="blog_inner_link">ETH price</a>. Data from [Sosovalue shows](https://m.sosovalue.com/assets/etf/us-eth-spot "Sosovalue shows") that the ETH spot ETFs recorded outflows from the first week of their launch. In particular, during the first week the crypto ETF products had net outflow of $341.35 million . Once again, during the second week they had a net outflow of $169.35 million. Notably, within these two periods the total net assets value dropped from $9.24 billion to $8.33 billion. The main cause of the fall in the value of the assets was the crypto ETH decline.

Although the crypto ETFs continue to record large outflows starting from the third week they also had some notable inflows. For example, during the third week there was an inflow of $104.76 million. During the third week of August there was a remarkable capital inflow in the Ethereum spot ETF sector in the United States for the first time. Although outflows amounted to $38 million, BlackRock's iShares Ethereum Trust (ETHA) had more than $1 billion in net flows. So far it is the only crypto ETF in this category that has attained such a milestone. Currently, ETHA has net assets valued at more than $860 million. Based on ETF market analysis, only Grayscale’s mini ether trust (ETH) and Ethereum trust (ETHE) have more value than ETHA.

## Understanding Ethereum Spot ETFs
Ethereum spot exchange traded funds (ETFs) are investment assets that track the value of Ether, the number one altcoin on the market. In fact, through a spot ETH ETF investors pool their funds to purchase ETH. However, an investment firm manages this fund which is traded on traditional stock exchanges. Thus, a crypto ETF is a regulated investment asset. What is also essential to note is that every ETH ETF should have a crypto asset management firm that holds the underlying asset which is Ether.

Ethereum ETFs help to streamline investment for retail investors who want to invest in cryptocurrencies without holding them. The investors can buy and sell shares of the funds on traditional stock exchanges. As such, they can use their existing brokerage accounts to invest in crypto-related products. Spot ETFs [help retail investors to adopt different crypto investment strategies](https://www.gate.io/learn/articles/the-impact-of-the-ethereum-etf-etf-an-analysis/3473 "help retail investors to adopt different crypto investment strategies"). It is important to note that market volatility affects the value of ETH ETFs. However, a person who invests in an ETH ETF will face less complexities than someone who chooses [to buy ETH](https://www.gate.io/how-to-buy/ethereum-eth "to buy ETH").

## ETH ETF Analysis: Reasons for Declining Interest
The news of the [possible approval of ETH ETFs was enough to drive](https://www.gate.io/blog/4263/the-launch-of-spot-ethereum-etfs-is-imminent-will-the-market-first-fall-and-then-rise "possible approval of ETH ETFs was enough to drive") the price of Ether upwards. Unfortunately, weeks after the launch of the ETH ETFs the interest in the product has declined. There are several possible reasons for that, including market volatility and regulatory challenges.

Competition from Bitcoin ETFs: One of the major factors that might have contributed to the decline in interest in spot ETH ETFs is competition from bitcoin ETFs. Many investors seem to prefer to invest in bitcoin ETFs which already have a known track record. When bitcoin ETFs were launched they had much capital inflows. However, when ETH ETFs were introduced most of them had net outflows. Such contrast might have lured many potential investors to go for bitcoin ETFs instead. Also, the ongoing weakness in the ETH/BTC pair should have influenced ETF investors to choose the BTC ETFs over the Ethereum ones.

Of note, bitcoin is ranked above ETH on the global scale which might influence investors to choose it over ETH. In fact, bitcoin is ranked number one while ETH is number two. That can psychologically influence people to invest in bitcoin ETFs rather than ETH ETFs.

Shift in Market Sentiment to other Investments: The truth is that there are many investment products in the crypto space at the moment. The investors who originally invested in ETH ETFs might have found other investment opportunities. Examples of notable products they might have chosen to invest in include BTC ETFs, cryptocurrency index funds, Ethereum related stocks and yield generating products such as ETH staking and lending.

Regulatory Concern: The fact that the United States SEC has excluded staking as a component of ETH might have led to the crypto ETFs decline. Normally, it does not sound usual to deal with Ethereum investments without taking into account staking. It is a fact that Franklin Templeton, Fidelity and BlackRock applied to add staking to their spot ETH ETFs. However, the SEC declined their requests. With staking users deposit their ETH into validator nodes to earn rewards from network fees. In this case, it means the ETH which the ETF issuers hold will not be eligible for staking.

## Can Decline in ETH ETF Interest Affect ETH Price
The decline in ETH ETF interest may also affect the price of ETH. First, if the news of the ETH ETF net outflows dominate the crypto sector that creates negative sentiment against the cryptocurrency. Also, since the launch of bitcoin ETFs there has been a correlation between capital inflows into the ETFs and its price movement. For example, when there is high inflows into BTC ETFs its price usually rises. On the other hand, when there is high net outflows its price tends to fall.

This example of bitcoin ETFs illustrates that there is likely to be a relationship between structured financial products like ETFs and the price of the underlying asset. In this case, the resultant change on ETH ETF demand, liquidity and investor participation may affect the ETH price.

<div class="blog-details-info">
<div>Author: Mashell C., Gate.io Researcher
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
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