Spot Ether ETFs Experience Significant Net Inflows Despite Price Drop
On Monday, U.S.-listed spot ether (ETH) exchange-traded funds (ETFs) saw a remarkable net inflow of nearly $49 million, even as the price of ether plummeted by approximately 20%. This sudden influx of capital highlights a persistent demand for ether, which is the second-largest cryptocurrency by market capitalization.
The dramatic price decline, which marked ether’s largest one-day fall since 2021, was primarily triggered by significant movements of the asset by Jump Crypto, a prominent trading firm. Jump Crypto transferred large quantities of ether to centralized exchanges, potentially signaling preparations for forthcoming sales. This move created heightened selling pressure across the market, exacerbated by a broader downturn in cryptocurrency prices. Additionally, over $340 million in ether futures liquidations contributed to the turmoil, leading to losses for many traders.
Despite the unsettling price drop, professional investors seized the opportunity to buy the dip. Data collected by SoSoValue indicates that ether ETFs experienced trading volumes exceeding $715 million, marking the highest trading activity since July 30. Among these ETFs, BlackRock’s ETHA led the way with inflows of $47 million. Other notable players included Fidelity’s FETH and VanEck’s ETHV, each recording inflows of $16 million.
In contrast, Grayscale’s ETHE was the only product to experience outflows, totaling $46 million. However, the provider’s smaller Ethereum Mini Trust (ETH) managed to attract inflows of $7 million. While these inflows appear promising in the short term, it is essential to note that since their inception on July 23, these ether ETFs have collectively seen net outflows of $460 million. This indicates that long-term demand for ether ETFs has yet to fully materialize, especially when compared to Bitcoin ETFs, which recorded over $1 billion in net inflows within their first 12 days of trading.
ETF flows are a crucial metric for identifying market trends, serving as an indicator of where investors are allocating their capital. The current mixed signals in the ether market raise questions about the sustainability of these inflows and the overall investor sentiment towards ether.
Interestingly, despite the steep declines in ether’s price, applications built on the Ethereum network have demonstrated notable resilience. This resilience may be a sign of strong fundamentals underlying the Ethereum ecosystem. Alice Liu, the lead researcher at CoinMarketCap, stated in an email to CoinDesk, “Ether’s disproportionate price drop was largely driven by the Jump Crypto sell-off and liquidation of other whale wallets.” Liu added a positive note, highlighting that the LSDFi, which refers to liquid staking derivatives finance, has withstood the recent pressure. “There’s been no major increase in Lido’s withdrawal queue, and no liquid staking depends on different projects,” she explained.
LSDFi represents a collection of blockchain-based activities that allow users to earn rewards while maintaining liquidity through derivative tokens. This process is increasingly popular among investors seeking to maximize their returns without locking up their assets for extended periods.
Moreover, Liu pointed out another encouraging aspect for ether: the recent liquidations seem to have revitalized the decentralized finance (DeFi) market. “Activities on DeFi started to pick up significantly on the network,” she noted. Additionally, gas fees, which are the fees users pay to conduct transactions on the Ethereum network, have returned to a more manageable range of 10-15 Gwei, especially after peaking at 370 Gwei earlier in the day. This reduction in gas fees could further enhance user engagement and activity on the Ethereum network, fostering a more vibrant ecosystem.
In summary, while the recent price drop in ether has raised concerns among investors, the strong inflows into ether ETFs signify robust interest from professional investors. The underlying fundamentals of the Ethereum network, coupled with the resilience of its DeFi applications, suggest that there may be a foundation for recovery and future growth in the ether market.