- Ethereum ETFs exhibit significantly lower trading volumes than Bitcoin ETFs due to the absence of leverage options on major trading platforms.
- The lack of staking options in Ethereum ETFs limits investor interest and market demand, hindering their performance compared to their Bitcoin counterparts.
Since their introduction, Ethereum-based ETFs have consistently shown lower trading volumes compared to Bitcoin ETFs. This discrepancy becomes more apparent when examining the volume and market capitalization relationships between Ethereum (ETH) and Bitcoin (BTC) on centralized exchanges (CEX). This article delves into the factors contributing to the subdued performance of Ethereum ETFs and the potential catalysts that could influence their future in the financial markets.
Ethereum ETFs are traded without the benefit of leverage at major brokerage firms, a critical feature offered for Bitcoin ETFs. Leverage allows investors to trade with more capital than they actually possess, which can significantly enhance trading volumes. The absence of this option for Ethereum ETFs reduces their appeal, thereby diminishing their trading volumes compared to Bitcoin ETFs, as emphasized by Galaxy Digital, a prominent asset management company.
The impact of the lack of leverage is evident when comparing the performance of Ethereum and Bitcoin ETFs during the first 25 days of their introduction. This comparison reveals a continuous decline in the ratio of trading volumes between Ethereum ETFs and Bitcoin ETFs. While interest and activity in Bitcoin ETFs remain high, Ethereum ETFs lag behind, reflecting a downward trend.
The differences between these financial instruments are also marked in the data concerning capital inflows and outflows. Since trading began on the US stock exchange last July, Ether ETFs experienced 19 days of outflows and only 9 days of inflows, leading to negative net inflows of $477 million. In stark contrast, Bitcoin ETFs have been highly successful, recording net inflows of $17.6 billion since their introduction earlier this year.
Matt Hougan, Head of Digital Assets at Bitwise, noted that institutional investors have adopted Bitcoin ETFs faster than any other ETFs in history, underscoring their success and the robust investor interest in Bitcoin as a digital asset.
Despite these challenges, Ethereum ETFs hold a respectable position compared to other funds. Of the nearly 400 new exchange-traded funds launched this year, 13 of the top 25 are related to Bitcoin and Ethereum, according to Nate Geraci, President of ETF Store. This indicates that half of the most popular ETFs this year are invested in these two digital assets, although it is noteworthy that the four largest ETFs in this group focus exclusively on BTC, revealing a clear investor preference for the former digital currency.
CoinMetrics, a blockchain analysis firm, recognizes the approval of the first Ethereum ETFs in the United States as a significant milestone in the history of cryptocurrencies. However, it also cautions that one of the factors that could impede better performance of Ethereum ETFs is the exclusion of stakes. Staking involves locking cryptocurrencies in a smart contract for a period to earn rewards and is possible on Ethereum as well as other networks that utilize the Proof-of-Stake (PoS) consensus algorithm.
The absence of staking options in ETFs might limit their demand in the short term, as some investors may prefer platforms that allow them to maximize their returns. Despite facing significant challenges, these funds represent a significant step for the digital asset and, according to expectations by CoinMetrics, could help Ethereum become an increasingly relevant catalyst in the global financial landscape.