Disclaimer: This is not financial advice. Anything stated in this article is for informational purposes only and should not be relied upon as a basis for investment decisions. Triton may maintain positions in any of the assets or projects discussed on this website.
TL;DR
On July 23, eight issuers officially launched their spot Ethereum ETFs in the United States. This marks the culmination of a simultaneously long-awaited yet still-surprising development in digital assets. This week’s post highlights how the ETFs have performed thus far and looks into some of the reasons for ETH’s underperformance despite the fundamentally long-term positive catalyst of ETFs going live.
Historically strong launch
On the first day of trading, aggregate volumes across all products totaled $1.1B, roughly 25% of what the BTC ETFs experienced ($4.5B) on their first day in January. In aggregate over the ~4 weeks since going live, total volumes have reached almost $10B, positioning ETH ETFs, as a whole, as one of the most successful ETF launches of all time.
Source: TheBlock
Net flows tell a somewhat different story. Whereas volumes measure the amount traded, net flows provide a better picture of the net new money into these products. Typically, when ETFs launch any early volume can be assumed to be purchases. However, much like we saw with the BTC ETFs and Grayscale’s BTC trust, volumes in the early days of these are largely dominated by outflows from Grayscale’s products.
Source: TheBlock
Over the first two weeks, this has largely been the case with the Ethereum ETFs. Volumes were largely driven by a rotation out of Grayscale’s ETHE into the other lowest-cost ETF products, or out of ETH products entirely. A major reason for this was the unwinding of the spot-ETHE arbitrage trade that many investors had put on throughout 2023 and 2024. Once SEC approval was highly likely, we saw a massive uptick in activity on the discount conversion trade, instantly closing to par from a 25% discount. As such, the ETHE outflows are a combination of flows into the new lower-cost products (ETHE’s fee was 2.5%, nearly 10x that of most other issuers) and investors closing this trade outright. Early exits from ETHE have been having a significant dampening impact on new flows, seeing ~$300-$350M in net outflows per day throughout the first week. This has started to moderate of late, and net flows into the products have turned positive overall – with net flows reaching ~$150M of buying following the market sell-off last weekend. It took almost 4 months for the daily flows of Grayscale’s GBTC product to turn non-negative for the first time. Though we expect the ETH transition to be more rapid, this same dynamic may prove somewhat dampening in the near term as was the case with BTC.
Source: TheBlock
As we pointed out in May, ETH was likely to underperform following these products going live. We also highlighted how the unique supply constraints around ETH create a more reflexive asset during periods of acute activity. Unfortunately, the timing of this ETH unwind coupled with the typically low liquidity of August and a correlation-1 selloff has led to a painful few weeks for ETH, briefly touching price levels not seen since November 2023.
Compounding this downside pressure, one of the largest trading firms last cycle, Jump Trading, seems to have begun offloading ~120,000 wstETH, worth nearly $500M at the time they began selling. They have roughly 28,000 stETH left in the wallet. While there has been no public statements made about why, a recent change in leadership around the same time that news broke of a potential CFTC investigation into the firm both point towards a change in involvement going forward for the firm.
Source: Jump’s ETH sells, courtesy of LookOnchain
Conclusion
The major wirehouses and asset management platforms are still largely in the process of underwriting the BTC ETFs (let alone the ETH ETFs), and most have not yet started actively marketing them to clients. Morgan Stanley is one of the first major platforms to begin, only giving the greenlight to its advisors to market BTC products to select clients last week. Given how long it has taken for BTC ETFs to clear these hurdles and the relatively long lead time that firms had before launching, one would expect the full adoption of ETH ETFs by traditional institutions to be even more protracted. The early signs are incredibly strong but have been largely overshadowed by the price action of ETH (and the market broadly) since going live. Zooming out and evaluating what this means on a 12-24+ month timeline, however, we remain optimistic about what this entails for ETH the asset, the broader Ethereum ecosystem, and the industry writ large.
