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Ethereum ETFs Will See a Fraction of Inflows Compared to Bitcoin
With the SEC’s final authorization for spot Ethereum ETFs now official, trading of the ETFs is set to begin on Tuesday morning. There is buzz about the potential appeal of these new products. However, initial demand from RIAs is expected to be muted.
“We believe if the Ethereum product gets somewhere in the 20% range of where the Bitcoin products are, that would be a good outcome,” said Aniket Ullal, vice president of ETF data and analytics at research firm CFRA.
Ethereum is a cryptocurrency with a current market cap of approximately $416 billion, second only to Bitcoin with a market cap of $1.32 trillion. The SEC provisionally approved eight Ethereum spot ETFs in May. The SEC asked the issuers to amend their S-1 filings before giving the final green light this afternoon.
On Friday, the Chicago Board Options Exchange (CBOE) published notices that several Ethereum ETFs will begin trading on Tuesday, pending final approval from the SEC, which has already been received. The five funds listed by CBOE include Fidelity Ethereum Fund (FETH), VanEck Ethereum ETF (ETHV), Franklin Ethereum ETF (EZET), Invesco Galaxy Ethereum ETF (QETH) It is 21Shares Core Ethereum ETF (CETH). Fees on these range from 0.20% to 0.25%, with most issuers planning to waive fees for six months to a year, depending on the amount of the investment.
Additionally, the Grayscale Ethereum Trust, a futures-based fund Ethereum ETF (ETHE)would be converted into a spot product at a rate of 2.5%. (Grayscale has filed a separate application for the Grayscale Ethereum (ETH) Mini Trustwith an expense ratio of 0.15%.) NYSE Arca, in turn, approved both ETHE and the Bitwise Ethereum ETF (ETHW)with negotiations also starting tomorrow. Meanwhile, the iShares Ethereum Trust ETF (ETHA) was approved by NASDAQ.
While market observers expect to see some demand for Ethereum spot ETFs from RIAs, this will likely lag behind the industry’s appetite for Bitcoin spot ETFs to date. According to Ullal, there are at least two reasons for this. The first is that Bitcoin products tend to be a more popular choice among investors. Ullal noted that Bitcoin currently accounts for approximately 53% of the total cryptocurrency market, while Ethereum accounts for just 18%.
Additionally, spot Bitcoin ETF adoption has been heavily skewed toward individual investors and very small RIAs. CFRA has no way of measuring the exact breakdown of spot Bitcoin ETF investment between RIAs and individuals acting on their own, but a May analysis of 13F forms filed by asset managers with at least $100 million in AUM revealed that they own about 15% to 20% of the total outstanding Bitcoin ETF shares. “We know that it’s a very large retail demand, just based on our conversations with investors and analysis of 13Fs,” Ullal said.
Similarly, Ric Edelman, founder of the Digital Assets Council of Financial Professionals, predicts that within the first year after their launch, Ethereum spot ETFs will likely accumulate one-third of the assets that Bitcoin spot ETFs currently have. He noted that it would take time for RIAs to become comfortable with the product and for Ethereum spot ETFs to become available on wealth management platforms.
“There will be less demand initially,” Edelman said. “Over the next year, we expect tens of billions of dollars to flow into these ETFs, but it won’t be immediate. I expect Ethereum ETFs to have about a third of the assets that Bitcoin ETFs have, and that reflects the current market cap. As advisors become more knowledgeable about the differences between Bitcoin and Ethereum, enthusiasm for Ethereum will grow.”
Chris King, CEO of Eaglebrook Advisors, a crypto investment platform for RIAs that offers Ethereum and Bitcoin SMAs, agreed with this assessment. He said that most RIAs cannot recommend spot Bitcoin ETFs right now, as there are still wealth management platforms that have not approved them. As a result, the initial buying into Ethereum ETFs will likely come from self-directed retail investors and institutions.
“I think most of the initial flows, similar to Bitcoin ETFs, will not come from the wealth management channel or the advisory channel,” King said. “In the short to medium term, it’s not that demand will be low; it’s that there will still be a bit of friction to access.”
However, King said that within about eight to 12 months, the majority of flows into spot Bitcoin and spot Ethereum ETFs could start coming from the wealth channel. During that time, interest rates could fall, more wealth management platforms are likely to approve these ETFs, and upward price momentum is expected if current trends hold.
“I believe there will be increasing demand for risk assets, and cryptocurrencies are generally the fastest horse in the risk asset race, as they have been in 2020 and 2021,” King said.
Randy M. Long, a registered financial advisor at the Reedley, California-based Long Family Office, noted that his firm already has a positive outlook on Ethereum ETFs in the pipeline.
“We are very supportive of this,” he wrote in an email. “We invested our portfolios in GBTC and ETHE a few years ago, well before any other company I knew of.”
According to independent research and advisory firm ETFGI, as of late June, listed cryptocurrency ETFs and ETPs globally reported inflows of $45.6 billion year-to-date, the highest level on record and up from around $566.6 million in the same period a year earlier. The jump in inflows reflected the SEC’s approval of spot Bitcoin ETFs. As of mid-year, there were 68 Bitcoin ETFs/ETPs globally, with total assets of $65.97 billion and net new assets of $45.0 million year-to-date. There were 41 Ethereum ETFs/ETPs, with net new assets of $4.1 billion and net new assets of $116 million.