US Ethereum ETF Demand Remains Low One Month After Debut – Here's Why

The nine US exchange-traded funds (ETFs) that track the spot price of ethereum (eth) have been struggling to attract new capital since their strong start in late July.

Outflows from the Grayscale ethereum Trust have largely contributed to the negative daily performance, and sluggish demand for other competing ETFs has also played a role.

In this article, we discuss the current challenges facing ethereum spot ETFs, their circumstances compared to bitcoin spot ETFs, and how they can succeed with increased institutional adoption and regulatory developments.

ethereum Spot ETF Performance: A Snapshot

According ethereum-etf-flow-all-data/” rel=”noopener nofollow noreferrer”>data According to Farside Investors, Grayscale’s ethereum fund, also known as ETHE, has seen net outflows of over $2.6 billion since it became an ETF.

Grayscale has maintained a 2.5% fee for its ethereum ETF, which is about ten times more expensive than other newcomers. Competitors like BlackRock and Fidelity charge around 0.25%, while others like VanEck and Franklin Templeton charge even less.

However, the fee structure isn’t the only factor that matters. Grayscale has offered a low-fee version of ETHE, but it’s still far from competing with BlackRock’s ethereum ETF.

BlackRock’s iShares ethereum Trust (ETHA) has seen over $1 billion in net inflows since its launch. However, its performance has stagnated recently, as it has seen no inflows for four consecutive days.

Three ethereum ETFs that lag behind BlackRock’s ETHA are ethereum’s FETH, Bitwise’s ETHW, and Grayscale’s btc, with $397 million, $314 million, and $242 million in net inflows, respectively. Excluding Grayscale’s ETHE, the rest also reported smaller gains more than a month after their trading debut.

Staking could be a big business that is missing

Staking has become an integral part of the ethereum ecosystem following its historic transition from the Proof-of-Work to Proof-of-Stake consensus mechanism. But the Securities and Exchange Commission’s (SEC) perceived stance on cryptocurrency staking has deterred ETF issuers from including this feature in their ethereum spot ETF proposals.

As a result, all ethereum products became available without staking. The lack of staking rewards may reduce the attractiveness of investing in ethereum via ETFs for some, if not many, investors.

“An institutional investor looking at Ether knows there are returns to be made,” technology/cryptoverse-like-bond-with-no-yield-investors-split-ether-etfs-2024-07-23/” rel=”noopener nofollow noreferrer”>saying CoinShares’ McClurg: “It’s like a bond manager saying he’s going to buy the bond, but he doesn’t want the coupon, which is the opposite of what you do when you buy bonds.”

Similarly, Chanchal Samadder, chief product officer at ETC Group, said owning an ETF without the participation yield is like owning a stock without receiving a dividend.

Samadder believes the lack of staking rewards may deter some investors from ethereum ETFs, as they essentially become “a bond without yield.”

Not all experts consider the lack of staking in ethereum spot ETFs to be a major problem.

There is a belief that overall demand for ethereum will continue to increase due to the introduction of these ETFs, even without staking rewards. The arrival of ethereum spot ETFs is expected to attract a wide range of investors, including those who may not have directly interacted with cryptocurrencies before.

Nate Geraci, president of ETF Store, believes that betting on ethereum ETFs is a question of “when, not if” as the regulatory environment evolves.