The State of Ethereum (ETH) Exchange-Traded Funds (ETFs) in 2024
Since their launch in July 2024, Ethereum (ETH) exchange-traded funds (ETFs) have faced challenges, recording $610 million in net outflows. In contrast, Bitcoin ETFs also experienced net outflows amounting to $330 million during the same period.
Performance Comparison: Ethereum vs. Bitcoin
Ethereum, as the world’s second-biggest cryptocurrency, has consistently underperformed Bitcoin following the ETF launches. Its share of the global crypto market cap has been on a downward trend.
Layer 1 vs. Layer 2 Ethereum Activity
While Layer 1 Ethereum activity remains subdued, the usage of Layer 2 solutions has been increasing significantly. Analysts from Citi suggest that the recent risk-friendly stance by the Federal Open Market Committee (FOMC) in September could potentially shift this dynamic.
Market Outlook and Potential Reversal
Citi analysts believe that in a continued risk-on market environment, there is a chance for crypto and ETH to receive support and reverse the net ETF outflows. However, this would require a notable improvement in activity on the Ethereum network.
Factors Influencing Ethereum’s Performance
The dovish FOMC decision has somewhat halted ETH’s decline relative to BTC, but the challenge remains significant. Only about 30% of trading days have seen positive net inflows into spot ETH funds.
To recover market share meaningfully, Ethereum’s Layer 1 activity would need to see an uptick. While Layer 2 network activity has been strong, the subdued active addresses on Layer 1 may explain some of ETH’s recent underperformance.
Bitcoin’s Continued Success
Bitcoin ETFs have been attracting attention, with net inflows totaling $17.2 billion since their launch. Bitcoin’s status as “digital gold” and its first-mover advantage have contributed to its outperformance compared to ETH in terms of both inflows and market dominance.
Market Correlations and Influencing Factors
The correlation between cryptocurrencies and U.S. equities has increased in recent weeks due to macroeconomic factors like labor data and the Federal Reserve’s policy direction. This correlation is expected to remain strong as markets gain clarity on economic outlook and potential regulatory changes, especially leading up to the U.S. presidential election.
Macroeconomic Drivers for Crypto
Equities have emerged as the dominant macro driver for cryptocurrencies. Notably, the crypto-USD correlation turned positive on August 5, a rare occurrence in recent years. Analysts at Citi are keeping a close watch on any signs of monetary debasement fears resurging, which could impact both crypto and gold markets.
Analysis and Implications
The performance of Ethereum (ETH) exchange-traded funds (ETFs) and the broader cryptocurrency market, particularly in relation to Bitcoin, is indicative of the evolving landscape of digital assets and investor sentiment. Here are some key takeaways:
- Ethereum’s underperformance compared to Bitcoin highlights the challenges faced by the second-largest cryptocurrency in maintaining market share and investor interest.
- The shift towards Layer 2 activity on the Ethereum network signals potential scalability improvements but underscores the importance of stimulating Layer 1 engagement for sustained growth.
- Bitcoin’s continued dominance and appeal as a store of value contribute to its success in attracting investment inflows, outpacing Ethereum in market performance.
- The correlation between cryptocurrencies and traditional equities underscores the interconnectedness of financial markets and the impact of macroeconomic factors on digital assets.
- Monitoring market dynamics, regulatory developments, and economic indicators will be crucial for investors seeking to navigate the evolving landscape of cryptocurrency investments.
Overall, the performance of Ethereum ETFs, Bitcoin’s market dominance, and the correlation between crypto and traditional markets provide valuable insights into the dynamics shaping the future of digital assets and investment opportunities.