With Ethereum prices fluctuating by almost 1% in the second quarter of 2024, investors’ interest had already decreased by 3% as of August 2024. Read this article to understand how these Ethereum ETFs have affected investors’ confidence.
Ethereum has been experiencing financial turbulence since Q2 of 2021. This has been marked by the prices dropping from as high as $3600 at the end of 2021 to around $1800 by the end of 2023. Such instances, of course, draw the attention of investors as the prices of Ethereum can shift frequently.
Ethereum’s ETF market
After a massive increase in the Ethereum Exchange-Traded Funds during the second half of this year, the technology has undergone scrutiny before being approved for the crypto market. Gary Gensler, the SEC chairman, suggested that its technicalities and dynamics would require strict regulations to protect average investors.
Traders also have been anticipating the SEC’s stance on Ether’s EFT, as it could significantly affect Ethereum’s performance. Titan of Crypto, a prominent analyst, has highlighted a significant outflow of 260,000 ETH, equivalent to $781 million, between June and July 2024. With indications that approvals may not be imminent, traders’ reactions have become concerning.
Interestingly enough, K33 Research experts have also indicated that investors have been underpricing Ether’s ETF. This is not surprising because ETH’s performance has been relatively low since 2022. With Ether’s ETF expected to outperform by 1% after its launch, Grayscale, a significant investor, has moved at least 10% of its net asset value to its ETHE (Ethereum Trust) after converting to an ETF. And despite such changes by whale investors, investor interest remains high.
The worry for small to medium-scale investors
As you might know, crypto trading has gotten a boost from the US Securities and Exchange Commission after approval of Ether’s and Bitcoin’s ETFs launch as a channel for tracking prices. However, Ether’s ETF, since its launch, has faced challenges in gaining investor confidence, resulting in substantial investor outflow. Crypto Newsbytes highlighted that the net outflow of Ether’s ETF in the US was approximately $458 million by fall 2023, with whale investors like Grayscale steadily cashing out of this fund, causing doubt among small and medium-scale investors.
The same thing applies to institutional investors. Unlike Bitcoin ETFs, which have experienced significant institutional inflow, Ether has faced stunted growth with its investors. Even after several asset managers like BlackRock and VanEck launched Ether ETFs in 2024, Ether ETFs have yet to pick up after the Bitcoin ETFs frenzy. Finimize media suggests that the key issue may be the SEC’s exclusion of the ‘staking’ mechanism from Ether’s ETFs.
Here’s the thing. Average investors depend heavily on whale investors to trade, and adverse decisions from big investors directly affect small and medium-scale investors. Ether prices vary depending on market demand and currency supply. So, when giant investors like Grayscale move 10% of their net assets from their Ether accounts, it should cause worry to the average investors.
Hope for Ether ETF investors
Despite a good number of investor outflow from Ether ETFs, investor interest in Ethereum has not subdued. Good enough, about $3 billion was moved from centralized exchanges into Ether ETFs after the US approved spot ETFs, indicating a supply increase. This was further confirmed by a reduction of 797,000 Ethereum on exchanges in May and June 2024. Recent blockchain data shows increased Ethereum storage, reducing the available supply on exchanges. This, of course, results in price hikes suitable for investors.
Plus, after the US Securities and Exchange Commission approved spot ETFs, Ether’s price shot up 7.1% to $3433.07. Morningstar Direct shows that the launch was one of the most successful in crypto history; nine new products drew $6.6 billion in assets within their first three weeks of trading. By the end of June 2023, ETFs had also attracted a net of $33 billion in inflows.
CoinGecko highlighted that the market value after the ETF’s launch was around $359 billion compared to Bitcoin ETFs’ 1 trillion. However, Thomas Perfumo, the head of strategy at Kraken, stated that given Ether’s smaller market size, its inflows didn’t need to reach the level of Bitcoin ETFs to be considered successful. As such, ETF approvals are expected to increase in the coming years, which means that there is good in store for future investors.
What the future holds for Ether ETFS
Regardless of Ethereum ETFs’ various challenges amid its financial fluctuations, investor interest coupled with supply cuts on exchanges indicates an optimistic future for ETFs. Also, Ether’s price could likely hike as the supply in the market reduces.
Overall, as more countries like the UK move towards integrating Ethereum into their exchange markets, who knows what the future holds for these crypto classes? While there might be challenges, that doesn’t mean investors won’t be drawn to this digital currency.
Photo by David McBee; Pexels
