Ethereum ETF Launch a ‘Success’ – But Grayscale’s $484M Outflows Are Turning Heads

On Tuesday, July 23, nine spots Ethereum Exchange Traded Funds began trading on the U.S. stock market for the first time, following approval from the Securities and Exchange Commission on Monday afternoon. “It’s been a pretty significant success,” James Seyffart, senior ETF analyst at Bloomberg, told Fortune. However, the flows are a fraction of those seen on the stock market for the Bitcoin equivalent first day of trading in January, which attracted $655 million on its launch day. In total, Bitcoin ETFs have seen net inflows of more than $17 billion this year.

ETFs now have $10.2 billion in assets and first-day volumes have surpassed $1.1 billion. Grayscale’s ETHE currently leads the way in volume, with $469.7 million. The issuer has a head start on volume because it turned its Ethereum closed-end fund, first launched in 2017, into an ETF. The issuers reporting the largest inflows are: Black rock with $266 million, Bitwise with $204 million and Fidelity with $71 million.

In total, the funds saw net inflows of $107 million, matching the $484 million outflows from Grayscale’s Ethereum Trust, ETHE, according to Bloomberg data.

So far, ETFs have left no mark on the price of Ethereum, which is down 0.8% since the start of trading Tuesday morning, according to data from CoinGecko. Since July 7, however, the token is up 17%. While anticipation of SEC approval may be factored into that price, it’s more likely that Donald Trump’s endorsement increased electoral chances in recent weeks, is the basis of this growth.

Given that its market cap is roughly a third of Bitcoin’s, it’s no surprise that the Ethereum ETF’s inflows have lagged behind its larger rival. But even accounting for the smaller market cap, both outflows and volume since launch remain small compared to Bitcoin’s, with the former accounting for 16% and the latter 23% of the figures seen for the ETF’s first batch.

One of the reasons why this is the case is that Issuers Prohibited by the SEC to allow investors to stake Ether into funds. Staking involves locking Ether tokens into the blockchain to help validate transactions and earn additional yields, as part of a proof-of-stake mechanism. The latest annualized reward rate is 3.33%, according to Staking RewardsWithout this feature, more crypto-native investors would be able to purchase Ether directly through a wallet, rather than through a fund.

“Certainly surprised”

But there’s another reason the outflows may seem modest: Grayscale’s $484 million. “I was really surprised by the amount of money that came out of ETHE on the first day,” Seyffart says.

On the first day of Bitcoin ETF trading in January, Grayscale’s Bitcoin Trust, or GBTC, saw less than $100 million in outflows. After years of having their funds locked up in the trust, on January 11, investors were finally free to liquidate their shares in GBTC. Starting in 2013, as a closed-end trust, GBTC was the only real option for trading bitcoin on an exchange, for which investors paid a premium. But starting in February 2021, it has been trading at a very high price. discountreaching record highs of nearly 50% in December 2022. Investors remained locked in the trust as they watched GBTC’s discount to the underlying asset, Bitcoin, widen.

ETHE outflows are coming from Grayscale’s 2.5% fee, while competing funds charge investors 0.25% or less. One reason ETHE outflows have outpaced GBTC’s could be that on the day the latter launched, the fund was trading at a steep discount to Bitcoin’s price.

Still, Seyffart believes the cryptocurrency industry should consider the initial data a success. For example, the smallest ETF, 21 Shares’ Core Ethereum ETF, which saw inflows of $8.7 million, would normally be considered a “very successful launch day by the first trading day of any standard ETF,” Seyffart says. Additionally, the volume numbers were “very strong,” he added.

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