Why Are Spot Ethereum ETFs Underperforming? Bitwise CEO Reveals

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As a seasoned researcher with over two decades of experience in the financial industry, I’ve witnessed numerous market trends and product launches. The recent performance of spot Ethereum ETFs has been a fascinating case study for me.

The launch of spot Ethereum exchange-traded funds (ETFs) has not met the high expectations set by their Bitcoin counterparts, leading industry experts to analyze the underlying reasons. Since their inception on July 23, all spot ETH ETFs have seen outflows of $463 million, according to Farside Investors data. The main culprit is Grayscale’s ETHE with $2.996 billion in outflows, while BlackRock has $1.258 billion and Bitwise $321 million in inflows.

Why Are Spot Ethereum ETFs Not Doing Better?

As a researcher, I recently delved into the factors influencing the performance of US spot Ethereum ETFs, sparked by a question posed at a recent event: “Why didn’t the Ethereum ETFs perform better?” It’s important to clarify what we mean by success first. The Ethereum-based Exchange Traded Products (ETPs) from iShares, Fidelity, and Bitwise are all among the top 25 fastest growing new ETPs this year.

Although Ethereum ETFs are part of the rapidly expanding exchange-traded product (ETP) market, Horsley pointed out several reasons why their initial launch might not have been successful. One potential factor could be the timing of the launch, which took place during a summer season when investors tend to slow down in terms of taking on new projects and focus more on monitoring rather than actively investing.

Furthermore, the state of the market was influential: “Bitcoin markets are often the center of attention, especially during uptrends when Bitcoin ETPs are introduced. However, the response for Ether ETPs has been subdued as they were launched in a relatively stable market.” The absence of strong upward price movement in Ethereum might have contributed to this lukewarm reception.

In simpler terms, the rapid succession of Ethereum ETFs coming after Bitcoin ETFs might have left conventional investors struggling to adapt to cryptocurrencies, as they were still grappling with understanding Bitcoin following the introduction of Exchange-Traded Products (ETPs). As a result, focusing on Ethereum became challenging for many due to their ongoing process of familiarizing themselves with Bitcoin.

In 2024, Nate Geraci, President of The ETF Store and co-founder of the ETF Institute, pointed out a significant trend in the success of exchange-traded funds (ETFs) related to cryptocurrencies. “Remarkably… Out of 525 ETFs introduced in 2024, 13 out of the top 25 are either focused on Bitcoin or Ethereum, and that number goes up to 14 when you include the MSTR Option Strategy ETF. The top four ETFs specifically invest in Bitcoin, five out of the top seven crypto-related ETFs do, and I refer to this as a ‘no-brainer’ phenomenon.

In response to this, Christopher Perkins, head of CoinFund, proposed that yield-earning products could make cryptocurrencies more appealing. He emphasized, “Yield would be beneficial. Total return Ethereum is the standout product.” Horsley conceded the benefits of staking but argued it might not significantly influence ETF performance right away. “I agree, ET32 has been expanding quickly within our European division,” he responded.

Nevertheless, Horsley also mentioned, “I believe the low yield from staking Ethereum isn’t a significant problem. Most Ethereum today is owned directly and thus can be staked, but approximately two-thirds choose not to. However, I acknowledge its value. We offer an Ethereum Exchange Traded Product (ETP) in Europe that includes staking, which is expanding well.

Experienced industry leader Dan Tapiero, head of 10T Holdings, expressed confidence in the future success of Ethereum spot ETFs. “Patience is key,” he said. “They’ll perform well.” Horsley agreed wholeheartedly, simply replying, “I concur.

At press time, ETH traded at $2,705.

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2024-10-21 17:11