Analyst Explains Why Ethereum ETFs Failed to Spark Market Enthusiasm

Despite the initial excitement surrounding the newly launched US spot Ethereum exchange-traded funds (ETFs), analysts predict minimal short-term price impact on Ethereum.

Since the US Securities and Exchange Commission (SEC) greenlit these investment products, Ethereum’s market behavior has been tepid. Its price and investor interest have declined noticeably compared to Bitcoin and Solana.

Ethereum Struggles Despite ETF Approvals

Since the introduction of the ETFs, Ethereum’s price has declined to $3,251, an 8% drop. Simultaneously, significant net outflows from Ethereum-related financial products, notably the Grayscale Ethereum Trust (ETHE), indicate a broader disinterest.

Data from SoSoValue reveals that approximately $178.68 million has exited the market in three days, with a staggering $1.16 billion withdrawn from ETHE since the ETFs began trading.

The outflows from ETHE are mainly because investors are migrating away from the high-fee product. ETHE charges around 10 times more fees than its competitors.

Read more: Ethereum ETF Explained: What It Is and How It Works

Ethereum ETF Performance. Source: SoSoValue

Market analysts had anticipated that Ethereum’s ETFs would replicate the excitement and surge in demand observed with Bitcoin’s ETFs. However, the Ethereum market’s response has been lukewarm.

“ETH is in limbo. Ethereum failed to scale the L1 while Solana rapidly gained ground. L2 scaling isn’t adding value to Ethereum (low ETH burn, fragmented liquidity, worse UX). Airdrop farming isn’t enticing anymore (low rewards). Even ETFs couldn’t ignite FOMO for ETH,” DeFi analyst Ignas expressed disappointment.

According to SoSoValue, a primary factor contributing to this indifference may be the ETFs’ ineligibility for staking. Direct Ethereum holders can typically earn a staking yield of 3%-5%. Conversely, ETF investors, restricted from this benefit due to regulatory constraints, face a direct disadvantage.

This staking yield is crucial to Ethereum’s value proposition, serving as a ‘risk-free’ rate in the crypto domain. The absence of this yield in the ETF model likely deters potential investors, who prefer more traditional, direct holdings or alternative crypto assets that offer better returns or more favorable investment structures.

Moreover, the public’s understanding of Ethereum’s fundamentals remains relatively low compared to Bitcoin, often referred to as ‘digital gold’. This knowledge gap also dampens enthusiasm around Ethereum’s ETFs, as potential investors remain cautious, favoring more familiar investments.

“Ethereum, as the largest basic public chain, has a relatively complex mining mechanism and its development is influenced by various forces in the ecosystem. Most importantly, as an investment target, its supply quantity involves dynamic calculations, making it difficult for ordinary investors to intuitively understand,” SoSoValue said.

Bitcoin Remains Popular in Google Search Trends Compared to Ethereum. Source: Google Trends

Additionally, analysts from SoSoValue noted that Ethereum ETFs may not significantly alter buying or selling pressures in the short term. While the Bitcoin Spot ETF witnessed substantial daily net inflows that directly impacted its market price, Ethereum’s equivalent currently lacks such market-moving potential.

However, the introduction of Ethereum ETFs might still play a crucial role in the broader acceptance and integration of crypto into mainstream financial markets. As the largest public blockchain platform, Ethereum’s transition into regulated financial products could pave the way for similar movements across other digital assets.