Limited Interest Persists in US Ethereum ETFs a Month After Launch—Discover the Reasons

The nine US exchange-traded funds (ETFs) that follow Ethereum’s spot price have faced challenges in attracting new investments after a strong start in late July. Outflows from the Grayscale Ethereum Trust have contributed significantly to the daily negative performance, with slow demand for other rival ETFs also playing a part. In this discussion, we delve into the current obstacles confronting spot Ethereum ETFs, their situation in comparison to spot Bitcoin ETFs, and how they can thrive through increased institutional acceptance and regulatory advancements.

According to data from Farside Investors, Grayscale’s Ethereum fund, known as ETHE, has witnessed over $2.6 billion in net outflows since its conversion into an ETF. Grayscale has maintained a 2.5% fee for its Ethereum ETF, which is roughly ten times more expensive than other newcomers. Competitors like BlackRock and Fidelity charge about 0.25%, while others like VanEck and Franklin Templeton charge even less.

However, the fee structure isn’t the sole determining factor. Grayscale introduced a low-cost version of ETHE, but it still lags behind BlackRock’s Ethereum ETF. BlackRock’s iShares Ethereum Trust (ETHA) has attracted over $1 billion in net inflows since its inception. Nevertheless, its performance has recently plateaued with no flows for four consecutive days.

Following BlackRock’s ETHA, three Ethereum ETFs – Ethereum’s FETH, Bitwise’s ETHW, and Grayscale’s BTC – have seen $397 million, $314 million, and $242 million in net inflows, respectively. Apart from Grayscale’s ETHE, the others also reported modest gains a month after commencing trading.

The shift to staking has become crucial in the Ethereum ecosystem after transitioning from the Proof-of-Work to Proof-of-Stake consensus mechanism. However, the Securities and Exchange Commission’s (SEC) stance on crypto staking has dissuaded ETF issuers from incorporating this feature in their spot Ethereum ETF proposals. Consequently, all Ethereum products launched without staking rewards, potentially reducing the appeal for some investors.

Experts have differing views on the absence of staking in spot Ethereum ETFs. While some believe it may deter investors, others anticipate an overall increase in Ethereum demand due to the introduction of these ETFs, even without staking rewards. Nate Geraci, president of the ETF Store, believes staking in Ethereum ETFs will likely materialize as the regulatory landscape evolves.

The launch of US spot Ethereum ETFs coincides with a challenging period in the crypto market, marked by a significant correction. Ether has dropped approximately 30% since the introduction of spot Ethereum ETFs, falling from around $3,500 at their debut to $2,400 presently. The recent crypto market downturn and Wall Street stock sell-offs have further impacted Bitcoin and Ethereum ETFs.

Despite the initial mixed performance of these funds, their success could unfold in the future, especially as the crypto market rebounds and investors become more comfortable with this asset class. As Ethereum maintains its position as a prominent blockchain platform, long-term adoption by Wall Street could propel growth in Ethereum ETFs.