- Spot ether ETFs have failed to attract the same kind of demand as spot bitcoin ETFs.
- But that was a tall order, considering how immensely popular the bitcoin products have been.
- Headwinds include the lack of staking yield in the ETFs and a difficulty in marketing Ethereum to investors.
In simpler terms, since their launch, Exchange-Traded Funds (ETFs) have seen a total of approximately $556 million being withdrawn. This week alone, these products have lost around $8 million, as per the latest data from Farside.
So why are ether ETFs performing so differently? There are a few possible reasons.
Putting inflows into context
To begin with, it’s crucial to mention that Ethereum ETFs may seem less favorable when compared to Bitcoin ETFs. However, the performance of Bitcoin-related ETFs has shattered numerous records, making them some of the most thriving ETFs ever introduced.
Despite not delivering record-breaking performance like some other assets, three Ether ETFs have managed to rank within the top 25 highest performing ETFs of the year, as indicated by ETF Store President Nate Geraci.
Geraci told CoinDesk that Ether ETFs would likely not surpass Bitcoin ETFs in terms of investments, given their differences in market capitalization. Since Ether’s market cap is approximately a quarter that of Bitcoin, it can serve as an estimate for where demand for Ether ETFs might eventually stand compared to Bitcoin ETFs.
Lack of staking yield
One of the big differences between bitcoin and ether is that investors can stake ether – essentially locking it into the Ethereum network to earn a yield paid out in ether.
Instead of directly investing in ether ETFs, investors are unable to participate in the staking process which provides a return (approximately 3.5% at present). This is because they’re also charged management fees by issuers, with rates ranging from 0.15% to 2.5%. In other words, investing through an ETF means forgoing the yield and paying fees on top.
As a financial analyst, I recognize that while some conventional investors might be willing to sacrifice yield for the ease and security offered by an ETF, crypto-savvy individuals may prefer exploring different methods for maintaining their Ether holdings.
If you’re a skilled fund manager who has some familiarity with the cryptocurrency market and are responsible for managing someone else’s funds, why would you invest in an Ether exchange-traded fund (ETF) at this moment? That’s the question posed by Adam Morgan McCarthy, an analyst at crypto data firm Kaiko Research, to CoinDesk.
Marketing Ethereum to clients
Another obstacle for ether ETFs is that it can be hard for some investors to understand the core use-case for Ethereum because it seeks to lead in several, diverse areas of crypto.
Bitcoin has a limited maximum supply of just 21 million units, which is why many investors view it as a digital equivalent of gold, offering a possible safeguard against inflation.
As a keen analyst, I’d like to delve into the significance of a decentralized, open-source smart contract platform and why I believe ether could appreciate in worth.
As a crypto investor, I’ve noticed that one hurdle for Ether ETFs in reaching the 60/40 Boomer demographic is finding a simple and straightforward explanation of its purpose and value. This is according to Eric Balchunas, an ETF analyst at Bloomberg Intelligence, who expressed this in May.
McCarthy concurred, stating that “Ether can be a tad harder to explain to others because it’s not designed for a quick summary like an elevator pitch.” (He said this to CoinDesk.)
As a researcher delving into the digital realm, it’s only natural that I find myself marveling at the recent educational advertising initiative by Bitwise for their crypto index fund. This campaign has been designed to emphasize the technological advantages that Ethereum brings to the table.
As investors grow familiar with concepts like stablecoins, decentralized finance, tokenization, prediction markets, and the various applications driven by Ethereum, they will likely take a keen interest in both this technology and U.S.-listed Ethereum Exchange-Traded Products (ETPs), as suggested by Zach Pandl, Grayscale’s head of research.
Poor price performance
Among the top cryptocurrencies, the one with the second-largest market value has increased by just 4% from January 1st, while Bitcoin has experienced a significant surge of 42%, frequently approaching its record highs set in 2021.
One key reason behind the thriving performance of Bitcoin ETFs, predominantly driven by individual investors, has been the influence of investor enthusiasm and the fear of missing out. This fervor was ignited by Bitcoin’s 65% surge prior to the ETF launch and a subsequent 33% increase since then, as stated by Brian Rudick, director of research at crypto trading firm GSR, in his conversation with CoinDesk.
Unattractive valuation
It’s plausible that conventional investors might view the current value of Ether as unappealing.
With an estimated market value of about $290 billion, Ether’s worth surpasses that of virtually all banks worldwide, save for JPMorgan Chase ($608 billion) and Bank of America ($311 billion).
Moreover, even though it may appear as if we’re comparing oranges with apples, Quinn Thompson, the founder of crypto hedge fund Lekker Capital, stated to CoinDesk that Ether’s value seems high when compared to traditional tech stocks.
In simpler terms, Thompson stated in September that Ether’s current valuation looks less appealing compared to other assets because there is no solid reasoning behind its price based on any standard valuation method. He suggested either the price should decrease or a new commonly accepted valuation approach for this asset needs to be adopted by many.
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2024-10-10 23:01