The question of whether investors will react to these new Spot Ethereum ETFs the way they did with the introduction of Spot Bitcoin ETFs has become clearer since they first started official trading on 23 July. It must be remembered that Ethereum is significantly smaller in market capitalisation than Bitcoin. However, the Ethereum blockchain serves as a foundational layer for many newer blockchain applications.
The new funds drew over $100 million in net inflows and $1 billion in trading volume on the first day. However, the nine US ETFs holding the Ethereum cryptocurrency saw outflows of $340 million during their first week of trading. This was largely due to outflows from the incumbent Grayscale Ethereum Trust. Yet things may be turning around as these new Ethereum ETFs experienced an overall net positive inflow, reaching $33.7 million on 30 July. This was mainly due to a slowdown in outflows from the Grayscale Ethereum Trust. The total value traded amounted to $563.22 million according to data from SoSoValue.
However, EXANTE’s Institutional Investor and Professional clients have had faith in these new products from the beginning. They went in wholeheartedly and have continued to do so. They initially changed their ETH-linked product allocation for 4.5% of these new ETFs, reducing their ownership of ETPs by 1.5% and CFDs by 3.1%. Over the past week they’ve continued to rebalance their ETH-linked product allocations, increasing their ownership of new Spot Ethereum ETFs to 12.4% and reducing their ownership of ETPs to 10.1% from 12.5% before the new Ethereum ETFs came into being. They’ve also reduced their ownership of ETH CFDs from 87.5% prior to the Spot Ethereum ETF listing, to 77.6% now.
EXANTE’s Institutional Investor and Professional clients have also continued to increase the number of positions they hold in these new Ethereum-linked products. They’ve increased their positions in the Spot Ethereum ETFs from 5.10% at the very beginning of trading on 23 July to 13.65% as of 30 July.
This change in cryptocurrency products comes as cryptomarkets have been responding positively to macroeconomic data indicating that the US Federal Reserve is increasingly likely to begin its rate cutting cycle in September, thereby making cryptocurrencies more attractive. We have also seen increasing focus on cryptocurrency in the wider economy by US Presidential candidates. Republican nominee and former President Donald Trump promised thousands of Bitcoin enthusiasts last Saturday at the Bitcoin 2024 conference in Nashville, Tennessee that as president he would make America “the Bitcoin superpower of the world.” He has also promised to fire SEC chair Gary Gensler, who has been an ardent critic of cryptocurrency products, and create a strategic Bitcoin reserve. Wyoming Senator, Cynthia Lummis, a Republican, has suggested draft legislation that the purchase of Bitcoin for a new strategic reserve would be financed partly by revaluing Federal Reserve's gold. According to Coindesk.com, the draft states that the Treasury secretary would "establish a decentralised network of secure Bitcoin storage facilities distributed across the US," selecting the locations for the vaults "based on a comprehensive risk assessment, prioritising geographic diversity, security and accessibility." The Treasury secretary would establish a "Bitcoin Purchase Program" of up to 200,000 BTC a year over a five-year period, for a total of 1 million.
How has this affected Bitcoin ETFs?
Data from Farside indicate that since Spot Ethereum ETFs were introduced on 23 July, total net inflows into Spot Bitcoin ETF products has been $55.21 million and the total cumulative net inflow since their listings was $17.65 bn on 30 July, up from $16.587 bn on 17 July. Despite Bitcoin itself having dropped since the speeches in Nashville, largely due to the US government transferring $2 billion of Bitcoin seized from Silk Road into two new wallets, EXANTE’s Professional and Institutional clients appear to have ignored these short term factors. They are continuing to invest in new Spot Bitcoin ETFs and are increasing their position in these ETFs relative to other Bitcoin-related products.
The change in Bitcoin valuation and the impact on Spot Bitcoin ETFs is reflected in the holdings of EXANTE’s Professional and Institutional clients, who saw a positive impact on the value of their holdings following Trump’s speech along with other global holders of Spot Bitcoin ETFs.
Although the value of Bitcoin is down approximately 0.50% over the past 7 days, it remains up over 57% YTD. This demonstrates that EXANTE’s Professional and Institutional clients, by being more positive about the longer term upward trend related to Bitcoin products than the global average, and continuing to invest their holdings to this instrument has paid off. They continue to move away from potentially riskier Bitcoin CFDs into these newer Spot Bitcoin ETF products, reducing their holdings of Bitcoin CFDs from 43.8% on 2 June to 41% by 30 July.
With the US looking increasingly likely to have a more positive approach to cryptocurrencies following the November election, we may see the development of even more crypto ETFs. Much will likely depend on the growth trajectory of the US and global economy, including continued growth in the tech sector. In addition, markets will likely continue to be swayed by changes in Fed, ECB and Bank of Japan (BoJ) monetary policy stances.
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