Ethereum ETFs launch amidst crypto market turbulence: what you need to know

On 23 July, US regulators officially greenlit spot exchange-traded funds (ETFs) that include Ethereum (ETH), paving the way for investors to gain exposure to the second most prominent cryptocurrency more easily. This approval concluded a protracted effort to secure Ether ETFs from the US Securities and Exchange Commission (SEC), which previously sanctioned Bitcoin (BTC) ETFs in January. By encapsulating Ether within an ETF structure, these funds become more accessible and appealing to traditional investors, who can purchase and trade them through standard brokerage accounts.

Ethereum ETFs start strong but stay in second place behind BTC

Since their introduction in January, Bitcoin ETFs have drawn tens of billions of dollars in investments. Now, Ethereum has another avenue to challenge Satoshi Nakamoto's original cryptocurrency.

Spot Ethereum ETFs saw a promising launch, drawing over $100 million in net inflows on their first day of trading. However, these inflows fell short of the impressive debut of Bitcoin ETFs in January and may face challenges in matching that success.

The new Ethereum ETFs received about 10% to 20% of the inflows that Bitcoin ETFs saw on their first day of trading in January. Considering Bitcoin's larger market capitalisation, this outcome was anticipated, yet it suggests that Ethereum might be a tougher sell to traditional investors and struggle to shed its second-place status.

Given that the spot Bitcoin ETF set a new record as the most successful ETF launch in financial history, this is not surprising. Bitcoin also benefits from being more straightforward and broadly understood, whereas Ethereum's value proposition is more complex and requires a deeper knowledge of blockchain technology and its applications as a platform for decentralised applications and new tokens. While crypto enthusiasts are already well aware of the advantages of Ethereum and its competitors, it will take time for investors to be educated about its potential. Nonetheless, once institutional investment in cryptocurrency becomes more mainstream due to the presence of these ETFs, it's likely that Ethereum will garner significant interest over time.

Analysts at financial services firm Morningstar have predicted that spot ETH ETFs could amass between $1 billion to $2 billion in total assets under management (AUM) over the next three months. In comparison, Bitcoin ETFs attracted approximately $12.7 billion in a similar timeframe, and ETH ETFs are projected to secure about 10% to 15% of that.

Initial trading data suggests substantial interest, with significant trading volumes indicating institutional buyers. The robust inflows have eased market concerns surrounding the much-anticipated ETF launch. Following the ETFs' listing, the Ethereum Volmex Implied Volatility (EVIV) index, which gauges the 30-day expected volatility of ETH, dropped by 4 points to around 65.

According to data from Bloomberg, three spot Ether ETFs — BlackRock's iShares Ethereum Trust ETF (ETHA), Bitwise Ethereum ETF (ETHW), and Fidelity Ethereum Fund (FETH)—led in terms of inflows, garnering $266 million, $204 million, and $71 million, respectively.

In total, the eight new spot ETH ETFs listed on 23 July attracted approximately $590 million in net inflows. Bloomberg ETF analyst Eric Balchunas noted on the X platform that "The New Eight taking in $590m on first day is huge, more than I guessed. It needed it too because the $ETHE unlock was also bigger than I thought. Either way, good to start life in the green at +$106m."

ETH value dips as Grayscale Ethereum Trust outflows hit $800 million

US-based spot Ethereum ETFs experienced net outflows of $113.3 million on their second trading day, driven largely by substantial withdrawals from Grayscale's Ethereum Trust.

Seven of the eight newly introduced spot Ether ETFs managed to record net inflows on their second day. Leading the pack were the Fidelity Ethereum Fund (FETH) and the Bitwise Ethereum ETF (BITW), which reported net inflows of $74.5 million and $29.6 million, respectively.

However, BlackRock's iShares Ethereum Trust (ETHA), which had the strongest inflows on the first day, saw a more modest $17.4 million in new investments on 24 July.

Despite these gains, the overall performance of the new ETFs was overshadowed by significant outflows from the recently converted Grayscale Ethereum Trust (ETHE).

Despite most Ether ETFs performing well during the Wednesday US trading session, Grayscale's converted Ethereum Trust ETF saw a significant net outflow exceeding $800 million.

Originally launched by Grayscale in 2017, ETHE provided institutional investors with a way to invest in ETH but required a six-month lock-up period. Since converting to a spot Ether fund on 22 July, investors have been able to sell their holdings more freely. Over the two days following this conversion, ETHE has experienced $811 million in outflows, equating to just over 9% of the fund's holdings being sold off.

This recent performance of Ether ETFs mirrors the initial behaviour of spot Bitcoin ETFs, which also saw cumulative net outflows during six out of their first 10 trading days, often attributed to outflows from the Grayscale Bitcoin Trust ETF.

At the time of writing on 25 July, ETH price has dropped over 7.5% and is trading above $3,164, driven by continued outflows from Grayscale's Ethereum Trust ETF (ETHE) and a broader market decline, including tech giant Nvidia trading in the red.

The decline in ETH's price comes amid a broader sell-off in the equities market, with the S&P 500 closing down 2.3% on 24 July. ETH's price fell more sharply compared to Bitcoin, which only declined by 2.6%.

Time to buy?

Analysts anticipate that Ether will experience significant price movement as spot ETFs gain traction, similar to Bitcoin's surge following its ETF launch.

Traders are now seeing ETH's price drop to sub-$3,200 levels as an optimal "buy-the-dip" opportunity, cautioning that this window might close quickly once the impact of ETFs kicks in.

Pseudonymous crypto trader Sheldon The Sniper advised his 490,300 followers on X that the current buy zones are $3,300 and below, noting that the $3,097 buy zone has already passed. He predicted that ETH could hit $4,000 "in the next week or two," emphasising these entry points as key opportunities for riding to the next all-time high.

Futures traders had anticipated a larger drop post-ETF debut. The 7.68% decline led to the liquidation of $42.53 million in short positions and $2 million in long positions, per CoinGlass data.

Analysts predict significant gains for Ethereum, expecting it to benefit from ETF inflows similar to Bitcoin, which saw its price jump from $40,000 to $70,000 after the launch of spot Bitcoin ETFs. In a note on 24 July, Michael van de Poppe suggested that Ether could potentially double in price, possibly rising from $3,500 to $7,000-7,500 following short-term volatility.

For context, Ethereum hit an all-time high price of $4,890 in November 2021. Breaking this record will be the near-term goal for bulls.

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