Spot Bitcoin vs Ethereum ETFs: The Race Is On

The bitcoin versus Ethereum ETF race is on for 2024. 

A 24% performance differential divides the popular crypto investments, as futures-based Ethereum ETFs are up nearly 15% and the new spot bitcoin ETFs are down 9% in their first three days of trading through Jan. 16. 

Over that brief period, $1.2 billion has flowed from the Grayscale Bitcoin Trust (GBTC), while $740 million has flowed into new spot ETFs like the iShares Bitcoin Trust (IBIT), meaning that almost $2billion has gone into the non-GBTC spot bitcoin ETFs this year. The heavy flows and trading volume partially explain the negative performance for spot bitcoin ETFs thus far. 

Investors Eye SEC Approval of a Spot Ethereum ETF 

Meanwhile, Ethereum appears to be gaining a similar kind of investor enthusiasm as Bitcoin did in 2023, as multiple issuers, including the ETF behemoth BlackRock, Inc., have filed for a spot Ethereum ETF. The timetable for the Securities and Exchange Commission to approve a spot Ethereum ETF takes us to May 2024, which could lead to the bidding up of Ethereum prices in the coming months. 

Although the 2024 spot bitcoin versus Ethereum ETF race has only just begun, the story is setting up as the more established cryptocurrency versus the rising outsider.  

GBTC Outflows Impact Spot Bitcoin ETF Pricing 

Digging a bit deeper into spot bitcoin’s poor start, $1.2 billion flowing out of GBTC pumped significant liquidity into the bitcoin ecosystem. The higher supply offset the early demand; thus, the price did not leap higher as many expected. The SEC announcement also appeared to become a “sell the news” event.  

BTC’s price rose more than 21% from late November through Jan. 8, peaking near $47,000 according to crypto data aggregator CoinGecko data, as signs suggested increasingly that the SEC would approve at least a few of the filings (the agency approved all 11 applications). A primary reason for GBTC’s huge outflows is likely its expense ratio of 1.50%, which is more than 100 basis points higher than any of the other 10 spot bitcoin ETFs on the market. Another reason is that GBTC had previously been a closed-end bitcoin trust with $29 billion in assets, and the SEC allowed it to convert to a spot bitcoin ETF last week as the new spot ETFs launched.  

GBTC’s conversion enabled investors to sell shares. They had likely been waiting to exit the closed-end fund once they were longer locked in. Many investors bought GBTC at a discount in 2023, which was as low as 50%. and sold at par to capture gains after the conversion. 

Closed-end funds can be less liquid than ETFs, which are open-ended funds. The limited number of shares outstanding can result in wider bid-ask spreads and reduced liquidity for CEFs. If there aren't enough buyers, a closed-end fund can trade at a discount.  

What’s Next for the Spot Bitcoin vs Ethereum ETF Race? 

Investors will likely be eyeing the bitcoin halving in April. The halving will cut the reward for bitcoin miners from the current 6.25 to 3.125 bitcoin, reducing the number of tokens entering the system. Observers of the digital asset space widely expect the event to boost BTC’s price and bring more assets into spot bitcoin funds.  

Bitcoin miners are lynchpins of the blockchain, helping to ensure its integrity. A month later, the SEC will decide on multiple applications for Ethereum ETFs, which could increase the price of ether, the token of the Ethereum network.