The outflow comes despite a broader crypto market rally fueled by recent Federal Reserve rate cuts that helped lift ether prices by 11% over the past week.

Ether (ETH) exchange-traded funds (ETFs) recorded their largest net outflows since July, with over $79 million exiting on Monday in a sign of waning institutional demand for the world’s second-largest token.

Those figures are the highest since July 29, when ETH ETHs recorded a cumulative $98 million, and the four-highest since they first went live on July 23, data from SoSoValue shows.

Nearly all of Monday’s outflows came from Grayscale’s ETHE product. Bitwise’s ETHW recorded just over $1.3 million in inflows. Other products showed no inflow or outflow activity.

The outflow came despite a broader crypto market rally fueled by last week’s Federal Reserve interest-rate cuts, which helped lift ether prices by 11% over the past week. The disconnect between ETH’s price momentum and ETF flows suggests that investors remain uncertain about the asset’s long-term growth prospects.

A closely watched ratio tracking the relative price strength of ether and bitcoin (BTC) has dropped to its lowest level since April 2021, as CoinDesk previously reported, a sign the broader market favors bitcoin’s perceived stability over ether’s riskier, high-yield potential.

According to Peter Chung, head of research at Presto Labs, the Ethereum blockchain’s “world computer” narrative does not resonate as easily with traditional finance (TradFi) investors as bitcoin’s “digital gold” meme.

“TradFi investors may not respond as enthusiastically to ETH’s investment thesis than to BTC’s. Gold’s investment thesis as an inflation hedge is well-known, and therefore, it is not a leap for TradFi investors to wrap their heads around the idea of ‘digital gold,” Chung said in a message to CoinDesk, referring to an August report by the firm on the topic. “On the other hand, ETH’s ‘world computer’ narrative is much more difficult for non-technicals to grasp.

“Even if they manage to come around, their conviction level would need to be high enough to justify adding a second digital asset exposure after a BTC ETF. This could be challenging because, for those who have already allocated to a BTC ETF in their portfolio, adding another digital asset exposure provides substantially less incremental diversification benefit than the first exposure,” he said.

Bitcoin set fresh lifetime highs in March in U.S. dollars (before tumbling 20%), while ether is yet to break its highs from 2021 and is still about only half that level. Year-to-date, bitcoin has returned over 50% , while ether has gained just under 15%.

Augustine Fan, head of insights at SOFA.org, noted that while ETH has gained on the back of the Fed’s dovish turn, the heavy ETF outflows indicate a fragile sentiment.

“Will a continued price rally rescue ETH ETF inflows from their current doldrums? The answer likely depends on whether we see another blow-off top in equity markets before November,” Fan said. “Ethereum has gained 11% over the past week on no new developments. However, the latest heavy outflow from Ether ETFs indicates uncertain sentiment among investors on its future growth momentum.”

Nick Ruck, an independent market analyst, pointed out that the recent outflows could be linked to broader pessimism about ether’s growth narrative.

“The surge in ETH ETF outflows may stem from investors allocating capital elsewhere due to the ongoing pessimistic outlook for ETH, and the current increase in the price of ETH is a good opportunity to exit the market,” Ruck said in a Tuesday message to CoinDesk. “Ethereum has been criticized recently for failing to push any narratives that could help attract more inflows. However, the new Pectra upgrade set to launch in Feb 2025 aims to enable users to pay gas fees with altcoins, among other benefits.”

“Institutional investors may feel there are better opportunities elsewhere for the time being,” Ruck added.

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ETH bounced over 18% in the past 24 hours to reverse losses from a steep fall on Monday, with some drawing eyes to the blockchain’s fundamentals.

U.S.-listed spot ether (ETH) exchange-traded funds (ETFs) recorded net inflows of nearly $49 million on Monday amid a 20% drop in its price, showcasing demand for the second-largest token by market capitalization.

Ether price cratered as much as 20% on Monday in its biggest one-day price fall since 2021 as prominent crypto trading firm Jump Crypto moved large amounts of the asset to centralized exchanges in preparation for potential sales. A broader crypto market haircut contributed to the selling pressure, with over $340 million in ETH futures liquidations adding to traders’ wounds.

Professional investors bought the dip, however. Data tracked by SoSoValue shows ETH ETFs traded over $715 million, the highest since July 30. BlackRock’s ETHA led inflows at $47 million. Fidelity’s FETH and VanEck’s ETHV recorded $16 million in inflows each.

Grayscale’s ETHE was the only product with outflows at $46 million, while the provider’s smaller Ethereum Mini Trust (ETH) recorded inflows at $7 million.

However, since they first went live for trading on July 23, the products have recorded net outflows of $460 million, indicating that long-term demand for ETH ETFs has yet to fully appear. Bitcoin ETFs, in contrast, recorded over $1 billion in net inflows within their first 12 days of trading.

ETF flows help identify market trends and they broadly show where investors are putting their money.
Meanwhile, some market observers pointed out that applications built on the Ethereum network showed resilience amid the steep declines – a sign of strong fundamentals.

“Ether’s disproportionate price drop was largely driven by the Jump Crypto sell-off and liquidation of other whale wallets,” Alice Liu, lead researcher at CoinMarketCap, told CoinDesk in an email. “On a positive note, LSDFi stood up to the stress test: there’s been no major increase in Lido’s withdrawal queue, and no liquid staking depends on different projects.”

LSDFi refers to liquid staking derivatives finance, a colloquial term for staking and derivatives. The process refers to a set of blockchain-based activities that allow users to earn rewards while maintaining liquidity through derivative tokens.

“Another silver lining for ETH is that the recent liquidation seems to have revived the DeFi market, where activities on DeFi started to pick up significantly on the network. Gas fee has also fallen back to a more manageable level of 10-15 Gwei post the 370 Gwei recorded today,” Liu noted, referring to the fees that users pay to use the Ethereum network.

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Source: Vietnam Insider

The forecast mirrors the market reaction after spot bitcoin ETFs were approved in January, QCP said.

Approval of spot ether (ETH) exchange-traded funds (ETF) in the U.S. could drive a rally of as much as 60% in the second-largest cryptocurrency in the coming months, QCP Capital said in a Thursday broadcast on Telegram

The forecast echoes the market reaction after spot bitcoin ETFs were approved in January, the Singapore-based firm said. Bitcoin rose to over $73,000 from $42,000 in the two weeks after the ETFs started trading on Jan. 11, CoinGecko data shows.

“With Friday implied volatility above 100%, the market is expecting fireworks,” QCP said. “VanEck’s ETF has been listed by the DTCC. We think approval is now highly likely with trading expected as early as next week.”

Implied volatility measures the market’s expectation of future price fluctuations for a financial instrument.

Buying activity increased on both centralized and blockchain-based crypto exchanges, on-chain analytics firm CryptoQuant said in a Wednesday report. Holders bought over 100,000 ETH in spot markets on Tuesday, the highest daily level since September 2023, as reports of a favorable decision emerged and some analysts bumped odds to over 75% from the earlier 25%.

Open interest on ether-tracked futures spiked in tandem to a record $14 billion. That’s 67% of bitcoin open interest as of Wednesday, an unusually high level.

Activity also increased at the Chicago Mercantile Exchange, an exchange favored by institutions, with ether futures hitting a record notional $2.85 billion of trading on Tuesday, according to a spokesperson. Ether options traded a record 1,135 contracts ($216 million).

“Traders seem to be getting more exposure now to ETH relative to Bitcoin,” CryptoQuant said. “The largest daily spot buying from ETH permanent holders so far in 2024.”

Ether prices in the coming days could be volatile after investors sent 62,000 ETH to exchanges, the most since early March, it said. “High exchange flows are typically associated with price volatility.”
On the flip side, the firm’s analysts warned of a “significant price correction” should the ETF application be dismissed.

Six issuers, including BlackRock, filed updated copies of their ether ETF proposals this week ahead of a decision due today. All removed plans to stake the token, which suggests the activity may have been a regulatory roadblock.

Staking is the process of locking a cryptocurrency for a set period of time to help support the operation of a blockchain, in turn for a reward. These rewards are largely considered passive income among crypto traders.

As of Thursday, annualized yields on ether staking were nearly 3%, according to data from popular staking service Lido.

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Source: Vietnam Insider