Ethereum’s 40% Decline Post-ETF Launch Reflects Predicted ‘Sell-the-News’ Response

Bitfinex analysts have noted that Ethereum (ETH) experienced a 40% drop following the introduction of spot ETH exchange-traded funds (ETFs) in the US, which they attribute to an anticipated “sell-the-news” response. The latest “Bitfinex Alpha” report highlights the challenges faced by Ethereum ETFs, with significant outflows exerting downward pressure on Ether’s performance compared to Bitcoin.

The report underscores the negative net flows of spot Ethereum ETFs, amounting to $420 million in outflows, as the primary factor driving ETH’s price decline in recent weeks. Market makers such as Jump Trading and Wintermute, combined with macroeconomic shifts resulting from Japan’s recent rate increases, have further contributed to the downtrend.

Ethereum’s weakness is evident in the significant fluctuations in fund flows within the Ethereum ETF market, leading to a decline in the ETH/BTC pair to its lowest level in over 1,200 days on August 5, dropping to 0.0367. The report indicates that the ETH/BTC pair has been on a downward trend since the Ethereum Merge in September 2022, deepening concerns about Ethereum’s relative weakness.

Bitfinex analysts attribute Ethereum’s underperformance to the impact of Bitcoin ETFs, which have successfully directed passive flows and increased demand towards BTC. Ethereum ETFs struggle to attract similar investor interest, despite their efforts to establish a presence in the market. The ongoing weakness in ETH/BTC suggests that broader market dynamics are at play beyond the availability of institutional investment products.

While Ethereum ETFs have shown some signs of recovery, with BlackRock’s iShares Ethereum Trust (ETHA) recording over $100 million in inflows on two separate occasions, Grayscale’s ETHE has experienced substantial outflows exceeding $2.4 billion since its conversion to an ETF. This outflow is attributed to a pricing discount of 20% to the underlying ETH price, persisting due to arbitrage traders taking profits.

The rate of ETHE outflows has surpassed those of Grayscale Bitcoin Trust (GBTC), indicating challenges in balancing market trends between ETH and BTC. The continued underperformance of ETH against BTC suggests underlying market forces impacting institutional investment products.