The launch of the ether (ETH) ETFs, the native Cryptocurrency of the Ethereum network and the second most valuable on the market, promised to be a positive milestone for investors, but the reality has been different, at least until now.
Since their debut in July, the funds have failed to meet market expectations. While Bitcoin ETFs (BTC) have reached historic investment levels, Ethereum’s seem to be stagnantmarked by net capital outflows that exceed inflows.
Ether ETFs have failed to generate the same interest as their bitcoin-based counterparts, which since their launch in January 2024 have accumulated a flow of 20 billion dollars. For comparison, it took gold ETFs about 5 years to reach the same figure.
In contrast, Ethereum ETFs, in less than four months, have seen a net total of 500 million dollarseven They have had entire days with 0 money coming in and going outas reflected in the following Soso Value graph.
Exits and inflows of Ethereum ETFs. Source: Soso Value.
This imbalance has set off alarms among analysts and investors. Despite initial expectations, capital withdrawals and a general lack of interest have made the situation potentially critical for Ethereum ETFs.
Factors that could explain the poor performance of Ethereum ETFs
According to a Hashdex studya cryptocurrency investment firm, the negative performance of Ethereum ETFs responds to several key factors.
The first of them is market conditions. When bitcoin ETFs were launched in January of this year, the digital asset market was booming. Within 3 months of these bitcoin-based funds being launched, the currency reached a new all-time high of $73,300 in March 2024, as can be seen in the following chart. TradingView.
BTC price. Source: TradingView.
Ethereum, for its part, has been stuck in a sideways market since launch of its ETFswhich has affected the interest of investors.
Another important factor is the complexity of Ethereum’s value proposition. While bitcoin is presented as a clear and simple store of value, Ethereum has a more complex approach.
Its applications, such as smart contracts and decentralized finance (DeFi), offer a diverse set of uses, but also require deeper analysis and greater understanding from investors. This has led many to opt for bitcoin, a more familiar asset.
The third and final factor is the feeling of risk. According to Hashdex, investors are starting to feel more comfortable with investments they previously considered risky, such as digital assets.
This change in attitude is mainly due to the fact that there is more money circulating in the market, which causes investors to have more capital available to invest in riskier assetssays the company. This is encouraged by central banks’ monetary policies, such as lowering interest rates, making money cheaper and stimulating investment.
This different perspective of investors is a gradual process that has not yet fully taken hold. Despite this general change, many investors remain cautious and they prefer to limit their investment in assets such as bitcoin, which is considered the most stable and well-known digital currency, adds the Hashdex study.
Unmet expectations
Before the launch of Ethereum ETFs, expectations were high. CitiBank analysts predicted that these funds could attract 30% of the capital captured by bitcoin ETFs, which would translate into $5 billion in the first six months, as reported by CriptoNoticias.
Ethereum not only runs the cryptocurrency ether, but functions as a network of decentralized applications and smart contracts. Instead, bitcoin has been created to give rise to a self-custody decentralized currency with a limited supply, the bank explained.
According to Citi analysts, Investors who were likely to buy the ETFs could view bitcoin and ether in a similar way instead of different assets, dividing their allocations between both. They even claimed they could see capital migrating from the BTC ETFs, present in the US market since the beginning of 2024, to those of ETH.
However, The reality has been different. Despite initial optimism, the numbers have fallen far short of projections..
Even James Seyffart, an ETF specialist at Bloomberg Intelligence who was bullish on Ethereum ETFs, recognized during his participation in an event last week, that his estimates were too optimistic.
One of the factors that explains this disappointment is the timing of the launch. Ethereum ETFs were introduced over the summer in the northern hemisphere, a season when economic activity generally declines for the holidays.
Besides, ETH price has not had a notable performance so far this yearwith an increase of only 15%, as can be seen in the graph of TradingViewcompared to bitcoin’s 57% increase.
ETH price. Source: TradingView.
Another major hurdle is that Ethereum ETFs cannot stake the ETH they hold, reducing their appeal.
He staking It is the act of leaving cryptocurrencies, in this case ETH, deposited in a smart contract for a certain period in exchange for rewards, and many investors prefer to do it directly in that tool rather than investing in an ETF that does not offer this option.
Originally, Ethereum ETFs were going to invest in ETH and staking the cryptocurrency, but the latter was removed from the proposals so they could be approved by the United States Securities and Exchange Commission (SEC).
Adam Morgan McCarthy, analyst at Kaiko Research, points out This makes Ethereum ETFs less attractive to those who understand the value of staking.
The challenge of educating the market
Eric Balchunas, ETF specialist at Bloomberg Intelligence, suggests that Another important challenge is to effectively communicate the value proposition of Ethereum.
While Bitcoin has been dubbed “digital gold,” Ethereum ETFs still lack a catchy slogan that distinguishes them and clearly explains their value, says Balchunas.
To attract the most cautious investors, such as baby boomers, it will be necessary to simplify and clarify the message about what Ethereum can offer, adds the specialist.
Is there hope for Ethereum ETFs?
Despite disappointing performance so far, some specialists remain optimistic on the future of Ethereum ETFs.
Matt Hougan, Chief Investment Officer at Bitwise, believes that capital flows into these products will increase in 2025 and 2026.
The entrepreneur points out that, although Ethereum requires more education, investors are beginning to better understand its potential.
The path to success for Ethereum ETFs is still unclear, but with more education and a greater understanding of their advantages, such as their ability to run decentralized applications and smart contracts, some believe these products could exceed initial expectations.
However, It remains to be seen whether investors will be willing to wait long enough for this to happen..
While Ethereum ETFs have not met initial expectations, the situation could improve over time. The complexity of Ethereum, its correlation with bitcoin and the current risk sentiment among investors have worked against it, but the future could still be promising if the market learns to better value its potential.
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