Ethereum ETF's First Week: Grayscale Outflows Surge
The Blockchain Sector @ 2024-07-30
The Ethereum spot ETF’s started trading on July 23rd and we now have a week’s worth of data which offers insights into the market dynamics.
Grayscale's ETHE Decline
As expected Grayscale's ETHE fund which has converted to an ETF and already had $9B USD AUM has seen significant outflows. Over $1.7B has been withdrawn so far with the 2.5% fee being a significant deterrent for investors.
The outflows have been far greater than expected and only some of the funds are flowing back into other ETH ETF products. This time Grayscale launched a separate ETH ETF fund which has 0.15% fees as well which has seen $168m inflow as investors rotate out of the old ETHE fund.
Spot Ethereum ETF Flows - Week 1
Blackrock ETHA: $442.0m USD
Fidelity FETH: $244.2m USD
Bitwise ETHW: $276.3m USD
21 Shares CETH: $7.5m USD
VanEck ETHV: $46.3m USD
Invesco QETH: $14.2m USD
Franklin EZET: $25.8m USD
Grayscale ETHE: -$1,723.5m USD
Grayscale ETH: $168.9m USD
NET TOTAL: -$498.3
So far the spot ETF has been a net negative due to these Grayscale outflows and overall we’ve seen nearly half a billion dollars leave the markets. We did however get a banner on the NYSE so that’s nice.
BlackRock ETHA Market Leader Once Again
BlackRock appears poised to dominate the Ethereum spot ETF market, mirroring its success with the Bitcoin ETF.
BlackRock's ETHA spot ETF has attracted $442m in the first 5 trading days. Investors are flocking to BlackRock not only for its lower fees (0.25%) but also for its robust reputation and track record of successful ETF management. The data underscores this trend, with BlackRock's ETHA consistently showing higher inflows and better performance metrics compared to its peers. It should reach $1B AUM in the next week or two.
This is still significantly smaller than the spot Blackrock’s IBIT Bitcoin ETF which started trading in January and has $22B AUM. As discussed previously Bitcoin is a household name on Wall Street and I’m are not expecting Ethereum to draw as much demand in the short term.
First Signs of Slowdown in Grayscale's Outflows
Monday marked a notable shift in the dynamics of Grayscale's fund flows. For the first time, the outflows from Grayscale's ETHE product showed signs of slowing down.
23 Jul 2024: -$484.1m USD
24 Jul 2024: -$326.9m USD
25 Jul 2024: -$346.2m USD
26 Jul 2024: -$356.3m USD
29 Jul 2024: -$210.0m USD
As we can see from the chart above ETHE has seen a much faster asset sell off compared to Grayscales Bitcoin GBTC. Over the next 30 days I’d expect this chart to follow a similar trajectory to GBTC with outflows steadily declining and the markets stabilizing.
Bitcoin saw a 20% decline and bottomed out 12 days after the launch of it’s spot ETF’s and then went on to rally 90% over the next 50 days. Hopefully we will see something similar with Ethereum and it can reignite the bull run.
I’ll be watching the flows over the next week and as more data comes in we should be able to predict when it will turn around to a net positive inflow. There could be a frontrun trade as well which could create some momentum and significant daily candles.
Broader Market Implications
While the introduction of Ethereum spot ETFs has been a net negative so far, having this product available and trading on the NYSE is a game changer in the long term.
The outflows from Grayscales ETHE product wont last forever and eventually Blackrock’s ETHA will overtake it as it draws in capital from traditional finance.
If Ethereum can execute well and outpace competition to become the leading blockchain for web3 developers, Wall St will eventually wake up to the narrative that this isn’t just another cryptocurrency. The potential for a decentralized world computer that lets us share immutable permissionless code and data is far more disruptive than any single digital asset.
Over the next month we should see negative selling pressure from ETHE subside which will fall in nicely to the key period of September and November. This is the time when everyone will be back from holidays and I hope we will see a continuation of the bull market and 4 year cycle into a strong close for the year.
The Trump Trade
On November 5th the US will go to the polls and vote for what seems like a shoo-in victory for Donald Trump. This couldn’t be more bullish for crypto markets following his appearance at the Bitcoin conference this week.
The full speech is here:
You would expect him to tell people what they want to hear in an election year but this was exceptionally positive from the next president of the United States.
Criticized the current administration's approach to crypto regulation, promising to end what he described as a war on crypto.
Pledged to fire SEC Chairman Gary Gensler and appoint a new chairman supportive of the crypto industry.
Announced plans to make the U.S. a leading crypto nation by promoting favourable regulations and policies.
Promised to create a Bitcoin and crypto advisory council to design clear and fair regulatory guidance within 100 days.
Announced that under his administration, the U.S. would retain 100% of the Bitcoin it holds or acquires. He didn’t go so far as to announce a buying program.
Pledged to commute the sentence of Ross Ulbricht, the founder of Silk Road, who is serving a life sentence for his involvement in the dark web marketplace.
Emphasized his commitment to innovation, economic growth, and maintaining America's global leadership.
If you think back to where we were in the relationship between crypto and politics just a year ago, this is beyond what anyone in the industry thought possible.
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