ethereum exchange-traded funds in the US got off to a mixed start this week, with net inflows into most ETFs overshadowed by significant net outflows from Grayscale’s converted fund, ETHE.
Farside Investors Data sample ethereum (eth) spot ETFs saw total outflows of just over $162 million on Friday, July 26, marking the third consecutive day of negative net flows. In contrast, bitcoin (btc) spot ETFs saw a total of just over $162 million in outflows on Friday, July 26, marking the third consecutive day of negative net flows. Recorded $51.8 million in same-day net inflows, continuing a trend of positive flows for three consecutive days.
The first US spot ethereum ETFs (nine products from eight issuers) began trading on Tuesday, July 23, following approval by the Securities and Exchange Commission in May.
The first week of eth ETFs
In the first week of trading, most newly launched ethereum ETFs saw positive inflows, with the exception of Grayscale’s ETHE, which saw net outflows of $1.51 billion. ETHE outflows resulted in a total weekly outflow of $341.8 million for the ETFs.
BlackRock’s ETHA topped the list in terms of inflows, generating net inflows worth $442 million, followed by Bitwise’s ETHW with $265.9 million and Fidelity’s FETH with $219.4 million.
VanEck’s ETHV and Franklin Templeton’s EZET saw smaller inflows of $35.4 million and $23.3 million, respectively. 21Shares’ CETH received a $7.5 million inflow on launch day alone and saw no inflows in the three trading days that followed.
<img decoding="async" width="1160" height="878" src="https://crypto.news/app/uploads/2024/07/Screenshot-2024-07-27-at-10.21.11 PM.png” alt=”ethereum ETFs see net outflows of $341.8M in first week, driven by Grayscale's ETHE – 1″/>
Grayscale's Two ethereum ETFs, Explained
Major crypto asset manager Grayscale has introduced two spot ethereum funds to the markets last week, trading under the tickers ETHE and eth. The Grayscale ethereum Trust, ETHE, was initially launched in 2017 as a private placement, meaning it was only available to select investors and institutions in the US. Since 2019, shares of the ethereum Trust have been publicly traded OTC under the ticker ETHE. OTC trading of ETHE came with a 6-month holding period. However, since ETHE became a spot ethereum ETF last week, investors have gained the ability to sell their holdings more freely.
ETHE’s 2.5% management fee (which is relatively quite high compared to other ETF issuers’ 0.25% or lower fees) has led investors to switch to competing products with lower fees, spurring outflows from Grayscale’s fund. This situation is very similar to what happened with Grayscale’s bitcoin Trust (GBTC), which also converted to a btc ETF in January and then saw over $5 billion in outflows in its first month following the conversion.
Likely in anticipation of this dynamic, Grayscale launched another ETF product this week, the ethereum Mini Trust (under the ticker eth). The new product features a competitive fee of 0.15%, positioning it as one of the most affordable spot ethereum funds in the U.S. Unlike ETHE, Grayscale’s Mini Trust saw inflows every trading day last week, totaling $164 million.
Grayscale’s ETHE, which had around $10 billion in assets (2.9 million eth) before its conversion to an ETF, allocated $9.2 billion to its ETHE ETF product and just over $1 billion to its eth fund.
The ETHE outflows, coupled with a more than 6% drop in the price of ethereum since the ETFs were launched, have reduced the Grayscale ethereum Trust's assets under management to approximately $7.46 billion (2.28 million eth), as reported in its background page.
ethereum ETF vs bitcoin ETF: First Week
It’s still early days, and if Grayscale’s bitcoin spot ETF pattern is any indicator, ETHE net outflows could slow down. However, with an average net outflow of around $378 million per trading day last week, ETHE assets could be depleted within a month.
In terms of the Grayscale effect, one significant difference between GBTC and ETHE is that GBTC shares were trading at a discount to the spot btc price when the GBTC ETF product was launched. In contrast, the ETHE “discount” (or the difference between the price of an ETHE share and the spot price of eth) had closed by the time the spot ethereum ETFs were launched, which partly explains the increased incentive to exit the fund.
Moreover, the price of bitcoin had been rising sharply ahead of the launch of bitcoin spot ETFs in January, nearly doubling after expectations of approval rose in October. In contrast, the price of ethereum has been declining, falling more than 15% since the ethereum spot ETFs were first approved on May 23.
“The main difference for me is the comparatively massive outflow of ETHE. I think GBTC didn’t have that on day one because it was still at a significant discount when it launched.” x.com/JSeyff/status/1816108797435232623/” target=”_blank” rel=””>noted Bloomberg ETF analyst James Seyffart, comparing outflows from the two products.
The nine newly launched ethereum ETFs saw total net inflows of $106.7 million on their first day of trading on July 23, compared to $628 million in inflows for bitcoin ETFs on their debut, according to eth-spot/” target=”_blank” rel=””>data by SoSoValue
In terms of trading volume, eth ETFs saw around $1.1 billion in trading on their first day, while btc ETFs saw $4.66 billion in trading volume on their inaugural day.
Throughout the first week, ethereum ETFs generated a total trading volume of approximately $4.05 billion, compared to $7.85 billion for bitcoin ETFs in their initial week.
Analysts anticipate that spot ethereum ETFs will attract inflows ranging from 6% to 48% of those seen by bitcoin ETFs in the first six months. This estimate suggests that total inflows into ethereum ETFs could reach between $1 trillion and $7.5 trillion by the end of January 2025.
At the time of writing, eth, the second-largest cryptocurrency, was trading at $3,280. Its market cap is around $393 billion, with a 24-hour trading volume of close to $14.4 billion.