Have Ether ETFs Been a Bust or a Boom?

Ether funds have had net outflows since their debut.

It’s fair to say that this year’s debut of U.S.-listed spot ether ETFs has been a disappointment. 

After spot bitcoin exchange-traded funds broke records with their inflows earlier this year, spot funds tied to the world’s second most valuable cryptocurrency by market cap were expected to perform pretty well.

Not as well as bitcoin ETFs mind you—bitcoin’s market cap of more than $1.1 trillion is roughly four times that of ether’s $274 billion market value—but at least decently.

Instead, there’s been net outflows of $369 million since spot ether ETFs started trading on July 23.

Bulls will argue that the picture looks brighter when you strip out the $2.7 billion of outflows that the Grayscale Ethereum Trust (ETHE) has had since its ETF debut.

Like the Grayscale Bitcoin Trust (GBTC), ETHE converted from a quasi-closed-end fund to an ETF this year, creating an opportunity for redemptions for the first time.

If you strip out ETHE’s outflows, ether ETFs have seen $2.4 billion of inflows in under two months. Not bad at all.

Yet, just as in the case of spot bitcoin ETFs, when it comes to ether, you can’t completely separate Grayscale’s product from the fortunes of the category as a whole.

It’s likely that at least some of the money that left the expensive ETHE (2.5% expense ratio) went into cheaper ether ETFs, like the iShares Ethereum ETF (ETHA), which has seen $1 billion of inflows since its launch.

Ethereum Skepticism 

I’ll admit: ETHE’s outflows have probably made the demand for ether ETFs look worse than it truly is, and a clearer picture of the interest in these exchange-traded funds will emerge in the coming months and years.

That said, the underwhelming start for ether ETFs isn’t that surprising in the context of the broader cryptocurrency markets.

Since peaking in March, crypto prices have slumped. And ether, in particular, has performed poorly.

Ether was trading below $2,300 on Monday, a 44% drop from this year’s high in March as investors debate the Ethereum blockchain’s structure and potential usefulness. Bitcoin has fallen about 21% from its high set about the same time.

Excitement about DeFi, NFTs and all the other Ethereum-centric crypto applications has died down, sapping ether’s momentum and contributing to the overall skepticism surrounding the platform.

This isn't the first time Ethereum has faced skepticism, and the narrative surrounding the blockchain could quickly turn around under the right circumstances. 

But at least for now, ETF investors are content to sit on the sidelines.