Asset management firm VanEck announced plans to close and liquidate its Ethereum futures exchange-traded fund (ETF) EFUT, according to a Sept. 6 statement.

VanEck cited performance, liquidity, assets under management (AUM), and investor interest as factors behind its decision. The firm also noted the recent approval of its spot Ethereum ETP, ETHV, by the US Securities and Exchange Commission (SEC) as a key reason for shutting down EFUT.

EFUT shareholders have until the market closes on Sept. 16, 2024, to sell their shares on the fund’s listing exchange. Afterward, the ETF will be delisted, and trade will cease.

Meanwhile, Shareholders still holding EFUT shares by the expected liquidation date of Sept. 23, 2024, will receive a cash distribution based on their holdings’ net asset value (NAV).

EFUT, which launched on Oct. 2, 2023, is listed on the CBOE exchange. As of Sept. 5, the fund held $21.24 million in net assets, with an NAV of $20.23.

Unfair comparison

VanEck’s decision to shutter its Ethereum futures ETF comes as JPMorgan analysts noted that spot Ethereum ETFs’ AUM as a percentage of the token’s market cap are comparable to Bitcoin’s ETFs at a similar post-launch stage.

The analysts highlighted that the combined AUM of Ethereum ETFs, including Grayscale’s ETHE, accounted for roughly 2.3% of Ethereum’s total market cap by the end of their first 29 days of trading. In comparison, the total AUM of Bitcoin ETFs, including Grayscale’s GBTC, represented 3.0% of Bitcoin’s market cap during the same period.

By scaling AUM against the underlying market cap, the analysts stated that the performance gap between Ethereum and Bitcoin ETFs is less significant than it appears.

This analysis suggests that the launch of spot Ether ETFs has mainly been in line with that of Bitcoin ETFs. However, some market analysts argue otherwise, citing the over $500 million in negative outflows from US-traded spot Ethereum ETFs since their launch, unlike the record inflows seen in early Bitcoin ETFs trading.

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Monochrome Asset Management has filed to list an Ethereum exchange-traded fund (ETF) on Cboe Australia under the ticker IETH, as announced on Sept. 5.

The ETF aims to offer retail investors a regulated way to gain exposure to Ethereum. It will also be a dual-access fund, allowing investors to request cash or in-kind redemptions.

The firm expects a decision on the application by the end of the month.

If approved, IETH will expand regulated crypto investment options for Australian investors. Notably, it follows the earlier launch of Monochrome’s Bitcoin ETF (IBTC), which became Australia’s first ETF holding Bitcoin directly.

According to the company’s website, IBTC’s Bitcoin holdings were valued at $11.3 million as of Sept. 4.

Ethereum ETFs face challenges

Monochrome’s plan for an Ethereum ETF comes amid difficulties for similar products in the United States.

The US-traded spot Ethereum ETFs saw negative net flows of $476 million during their initial trading months, mainly due to outflows triggered by Grayscale’s ETHE.

Market observers attributed this underperformance to Bitcoin’s first-mover advantage, the lack of staking options in Ethereum ETFs, and lower liquidity in the Ethereum market, which makes these products less attractive to institutional investors.

Quinn Thompson, founder of crypto hedge fund Lekker Capital, highlighted the stark contrast in early Bitcoin and Ethereum flows. He noted that while Grayscale outflows have slowed, there is no significant interest or inflows into other Ethereum ETFs to counterbalance the outflows.

Additionally, the ETHE overhang was smaller than that of GBTC, partly due to forced selling by bankrupt entities.

Thompson noted that this made Ethereum ETFs perform even worse, considering the headwinds Bitcoin faced. He added:

“There is simply no smart money/traditional investor/whatever you want to call it demand for ETH at its current valuation.”

However, Bloomberg Senior ETF analyst Eric Balchunas believes the outflows will not last indefinitely. He expects that inflows into the newly launched ETFs will eventually offset the current outflows.

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Bitwise CIO Matt Hougan highlighted a notable increase in institutional investments in Bitcoin exchange-traded funds (ETFs) during the second quarter despite BTC value declining 12% over the three months.

Hougan highlighted the increased interest in his latest Aug. 20 note to investors, where he stated:

“Bitcoin’s price fell 12% in Q2 2024 and many wondered if that would spook institutions out of the market. The answer was a resounding ‘no.’”

Historic adoption rate

Hougan emphasized that institutional adoption of Bitcoin ETFs is occurring at an unprecedented pace.

According to him, the number of institutional investors holding Bitcoin ETFs grew by 14% quarter-over-quarter, rising to 1,100 from 965. These investors now control 21.15% of the total assets under management (AUM) in Bitcoin ETFs, up from 18.74%. By the end of Q2, institutional holdings in Bitcoin ETFs totaled $11 billion.

Despite 112 investors exiting their Bitcoin ETF positions during Q2, 247 new firms entered the market, resulting in a net addition of 135 institutional investors.

Hougan noted that the level of adoption of Bitcoin ETFs is comparable to the early growth of Invesco’s QQQ ETF, which launched in March 1999. Notably, the BTC ETFs have attracted 3x as many institutional buyers within just two quarters.

Hougan addressed concerns about comparing Bitcoin ETFs as a group to individual ETFs, stating that individual Bitcoin ETFs still dominate. For example, Bitwise’s Bitcoin ETF — ranked fourth by AUM at the end of June — had more institutional holders (139) than SPDR’s GLD ETF (118) at the same stage in its development.

Considering these numbers, Hougan concluded:

“We shouldn’t let the historic adoption of Bitcoin ETFs by retail investors obscure the fact that they are also gaining institutional traction faster than any other ETF in history.”

Portfolio expansion

The Bitwise CIO predicted that institutional exposure to the flagship digital asset would increase over the years.

According to him, while the median institutional investor currently allocates only 0.47% of their portfolio to Bitcoin, this figure could exceed 1% within a year. He explained that professional investors tend to gradually increase their crypto exposure, often starting with 1% or less but eventually raising it to 2.5% or even 5% over time.

Hougan added:

“Year 1 can be a challenge, but momentum tends to build into Years 2, 3, 4, and 5. I expect the same thing to happen here.”

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The Norwegian Government Pension Fund, commonly known as the Oil Fund, has indirect exposure to Bitcoin that rose by 62% during the first half of this year to the equivalent of 2,446 BTC, according to the Senior Analyst at K33 Research Vetle Lunde.

This equates to an increase of 938 BTC since December 2023, when the firm indirectly held the equivalent of 1,507 BTC.

The Norwegian Pension Fund is the world’s largest sovereign wealth fund, with assets amounting to $1.7 trillion, according to its latest reports.

NIBM’s Bitcoin exposure

Lunde attributed this growth more to automated sector adjustments and risk diversification than a deliberate strategy to increase Bitcoin holdings.

He explained:

“[This increase was] unlikely to stem from an intentional choice to amass exposure—if increased BTC exposure was the target, we’d see more evidence of direct exposure initiatives (and significantly larger exposure).”

Meanwhile, the fund’s Bitcoin exposure comes from investments in leading Bitcoin-related companies, including MicroStrategy, Marathon Digital, Coinbase, and Block Inc.

In the first half of 2024, the fund’s stake in MicroStrategy rose from 0.67% to 0.89%, as MicroStrategy boosted its holdings in Bitcoin terms by 37,181 BTC. Additionally, the fund increased its shares in Coinbase from 0.49% to 0.83% and Block Inc from 1.09% to 1.28%. It also added a 0.82% position in Marathon Digital.

Lunde pointed out that the fund’s indirect Bitcoin exposure amounted to 44,476 sats (approximately $27) per capita at the end of the year’s first half.

Other funds exposure

The Norwegian fund’s exposure to Bitcoin aligns with current trends observed in other pension funds, such as the Wisconsin Pension Fund, which have also increased their exposure to the top crypto.

Market observers noted that these investments reflect the growing acceptance of BTC as a viable alternative investment. This shift began earlier this year after spot Bitcoin exchange-traded fund (ETF) products were introduced in the US, making the asset class a viable option among traditional investors.

Lunde explained that these moves showed that “Bitcoin is maturing as an asset and getting woven into any well-diversified portfolio!”

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Capula Management, Europe’s fourth-largest hedge fund, purchased over $464 million in spot Bitcoin exchange-traded funds (ETFs) during the second quarter of 2024, according to an Aug. 5 US Securities and Exchange Commission 13F filing.

The filings showed that Capula holds 4,022,346 shares in the Fidelity Wise Origin Bitcoin ETF (FBTC), valued at approximately $211 million. The firm also owns 7,419,208 shares in BlackRock’s iShares Bitcoin fund, amounting to $253 million.

13F filings are quarterly reports that institutional investment managers with at least $100 million in equity assets submit to the SEC. These reports disclose long positions in US equities and options on equities but do not reveal short positions, thus providing a partial view of an investment manager’s portfolio.

Capula’s disclosure adds to a growing trend of institutional investors showing interest in the US spot Bitcoin ETFs. Last month, the State of Michigan Retirement System reported a $6.6 million stake in the ARK 21Shares Bitcoin ETF (ARKB) in its 13F filing.

Capula Investment Management LLP is a British hedge fund with approximately $30 billion in assets under management as of 2024.

Interest in Bitcoin ETFs

Institutional interest in spot Bitcoin ETFs remains strong despite BTC’s significant drop to a six-month low of under $50,000 before recovering to over $54,000 as of press time.

Eric Balchunas, Bloomberg’s ETF analyst, stated that the trading volumes for the investment products indicated robust community engagement, with around $2.5 billion traded during the market’s opening hours.

However, he pointed out that the high trading volume on down days can signal market fear, but at the same time, it reflects the liquidity that traders and institutions value in ETFs. He said:

He said:

“If you [are a] Bitcoin bull you actually DONT want to see crazy volume today as ETF volume on bad days is a pretty reliable measure of fear. On flip, deep liquidity on bad days is part of what traders and institutions love about ETFs, so you also want to see volume too, good for the long term.”

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Crypto-related investment products experienced outflows of $528 million, ending a four-week streak of inflows, according to CoinShares’ latest weekly report.

James Butterfill, the head of research at CoinShares, explained that the outflows were triggered by concerns about a potential US recession, geopolitical issues, and a broader market liquidation impacting significant cryptocurrencies.

Meanwhile, the firm noted that the exchange-traded products (ETPs) had a below-average trading volume of $14.8 billion, representing only 25% of the total market.

Last week’s market correction also reduced the value of ETPs’ assets under management (AUM) by $10 billion to $89.6 billion.

Bearish sentiments emerge

Butterfill pointed out that bearish sentiments began to emerge on Bitcoin last week, with the flagship digital asset recording outflows of $400 million for the first time in five weeks.

Conversely, short-Bitcoin products recorded a $1.8 million inflow, suggesting investors’ sentiment shifted toward betting against an upward BTC price movement.

This move is entirely not surprising as US Bitcoin exchange-traded funds (ETFs) saw net outflows of more than $80 million last week, driven by Grayscale’s Bitcoin Trust (GBTC), Fidelity’s FBTC, and Ark 21 Shares’ ARKB outflows of $806 million, $193 million, and $123 million, respectively.

The bearish sentiments also extended to Ethereum, which saw outflows totaling $146 million. This brings the total net outflows from the digital asset to $430 million since the launch of spot Ethereum exchange-traded funds (ETFs) in the US. European ETPs also contributed to the overall negative flows as they experienced minimal outflows from their funds.

Butterfill explained that the outflows were primarily influenced by the $603 million recorded from Grayscale’s Ethereum Trust (ETHE), which overshadowed the $430 million inflow seen by the other Ethereum ETF issuers.

Meanwhile, other cryptocurrencies like Cardano and BNB saw minimal activity in ETP trading, with Solana being an exception, experiencing outflows of $2.8 million.

Regionally, the US experienced an outflow of $531 million, while Germany and Hong Kong saw $12 million and $27 million outflows, respectively. Conversely, Canadian and Swiss investors capitalized on the market dip, with inflows of $17 million and $28 million, respectively.

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The Ethereum ecosystem is experiencing a historic drop in gas fees, which is impacting both mainnet and Layer 2 transactions.

According to Etherscan Gas Tracker, the average gas fee on the mainnet stands at 4 Gwei at press time, approximately $0.21. However, transactions can be processed for as low as 3 Gwei, or around $0.14.

This decline extends to the blockchain network’s Layer 2 solutions— including Optimism, Base, Arbitrum, and Linea— whose fees are below $0.01 per Gasfees.io data.

Market observers said the fee decline is mainly due to the increased use of Layer 2 scaling solutions and the adoption of blob transactions introduced with the Dencun hard fork in March—the upgrade has contributed to lower transaction costs on Layer 2 networks and has significantly impacted the network.

Effect of ETH gas fees drop

As a result of the lower fees, less ETH is being burned, making the network inflationary.

In the past 24 hours, less than 200 ETH were burned, leading to Ethereum’s supply becoming inflationary with a growth rate of 0.67%, according to data from ultrasound.money. Over 60,000 ETH was added to the network in the last 30 days.

OKX Ventures noted that this continues a trend observed in the second quarter when a 66.7% drop in the burn rate affected ETH’s supply-demand balance. The firm added:

“As network activity slows and burns decrease, managing Ethereum’s supply and inflation will be crucial.”

Ethereum ETFs

Meanwhile, analysts have pointed out that the recent launch of Ethereum exchange-traded funds (ETFs) adds further complexity to the Ethereum ecosystem.

Last week, the SEC approved eight new spot Ethereum ETFs, including the conversion of Grayscale’s ETHE fund, for trading on US exchanges.

These products saw inflows exceeding $1 billion during their first four days of trading, although this was offset by a roughly $1.5 billion outflow from Grayscale’s ETHE.

However, crypto analyst Koffi believes these trends show the network is in a “good place.” He wrote:

“The Ethereum ecosystem is affordable for end users + There’s new capital flowing into the system. I think we’re in a good place.”

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The ARK 21Shares Bitcoin ETF (ARKB) is a digital asset ETF that seeks to track the performance of bitcoin, as measured by the performance of the CME CF Bitcoin Reference Rate – New York Variant (the “Index”).

Bitwise CIO Matt Hougan predicts that the upcoming spot Ethereum ETFs will drive the digital asset’s value to new all-time highs, surpassing $5,000.

In a June 16 note to investors, Hougan wrote:

“By year-end, I’m confident the new highs will be in. And if flows are stronger than many market commentators expect, the price could be much higher still.”

However, Hougan mentioned that ETH’s price might not rise immediately after the ETFs launch next week because “money may flow out of the $11 billion Grayscale Ethereum Trust (ETHE) after it converts to an ETP.”

Still, Hougan emphasized that spot ETFs usually generate new demand for commodities like ETH. He referenced the launch of similar products for Bitcoin, which led to a price increase of around 25% since January 11 and about 110% since October 2023, when the market began anticipating their approval.

Why ETH could reach a new high

Hougan outlined three structural reasons why the inflows into spot ETH ETFs will have a more significant impact than they did for BTC.

First, he claimed ETH’s short-term inflation rate is 0%, unlike Bitcoin’s 1.7% when its ETFs began trading. This means BTC needed “$16 billion of Bitcoin buying per year just to tread water.” With ETH, the situation differs as “people using Ethereum-based applications—everything from stablecoins to tokenized funds—consume ETH as well.”

Hougan highlighted the correlation between “the amount of ETH being consumed” and network activity, noting it presents “another lever of organic demand working in [ETF] investors’ favor.”

Furthermore, Hougan pointed out that Ethereum’s price does not have to deal with the threat of “miners’ selling” because its stakers do not need to sell before making profits. ETH stakers are investors who have locked up a certain amount of their coins to help the network operate smoothly.

He wrote:

“A key difference between Bitcoin mining and Ethereum staking is that staking does not have significant direct costs. As a result, Ethereum stakers are not forced to sell the ETH they produce. Even if Ethereum’s inflation rate rises above 0%, I do not expect significant selling pressure from stakers.”

Additionally, Hougan pointed out that approximately 40% of the Ethereum supply is locked in staking and smart contracts, making it unavailable for sale.

So, Hougan reiterated his prediction that ETH ETF assets under management could reach $15 billion within their first 18 months of trading and concluded that:

“ETH is currently trading at ~$3,400, just 29% below its all-time high. If the ETPs are as successful as I expect—and given the dynamics above—it’s hard to imagine ETH not challenging its old record.”

[Editor’s Note:

Data from ultrasound money shows that Ethereum’s inflation rate is now above zero percentage, coming in at 0.466% over the past 24 hours and 0.595% over the past 30 days. However, since The Merge it has recorded a negative 0.136% inflation due to ETH being burned through transaction fees, making it deflationary over 1 year and 306 days. 

Hougan’s argument regarding Ethereum’s inflation ultimately relies on the network’s consumption. High transaction numbers lead to high amounts of ETH burned and, thus, lower inflation. Yet, the surge in layer-2 usage due to lower fees has resulted in fewer mainnet transactions over the past few months, thus pushing Ethereum back into inflationary territory.]

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Approximately 40% of Ethereum supply is locked as the market anticipates the final approval for ETH spot-based exchange-traded funds (ETFs).

A breakdown of this “locked supply” shows that over 33 million ETH is staked on the network, representing around 28% of Ethereum’s total supply, according to Dune Analytics data.

Proof-of-stake networks like Ethereum require users to “lock up” their digital assets to support its security and operations, and in return, they earn rewards.

Additionally, 12% of the supply is locked in smart contracts and bridges, which are seeing high adoption lately. For example, A.J. Warner, Chief Strategy Officer at Offchain Labs, noted that ETH in the Arbitrum One bridge has consistently increased over the past three years.

Market observers believe this substantial ETH lockup and the impending ETF approval will boost ETH prices. Tom Dunleavy, Managing Partner at MV Capital, pointed out that the approval of spot Ether ETFs will significantly impact the market. He stated:

“The spot ETH ETF flows are going to rapidly move this market.”

ETF approval

Meanwhile, anticipation continues to grow surrounding the final approvals for a spot Ethereum ETF in the United States.

On July 9, Bitwise’s Chief Commercial Officer, Katherine Dowling, said the ETFs are nearing approval, pointing out that the Securities and Exchange Commission (SEC) was addressing only a few remaining issues.

Dowling suggested the products might be approved over the summer, a sentiment echoed by Bloomberg ETF analyst James Seyffart.

Seyffart speculated that approval could come by the end of the month despite his low confidence in exact launch date predictions. He said:

“I have fairly low confidence in those launch date predictions at this point. There’s no deadline & SEC’s Corp Fin is taking its time here (I don’t blame them). But these changes were very minimal and [i don’t know] why the ETFs wouldn’t be ready to go within a couple of weeks.”

Meanwhile, crypto bettors on Polymarket expect the products to launch before the end of the month, with an 87% chance of being listed for trading by July 26.

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Bitwise CIO Matt Hougan has predicted that the impending spot Ethereum exchange-traded funds (ETFs) will see a $15 billion net flow within their first 18 months of trading.

Hougan shared this forecast on June 26, basing his prediction on Ethereum’s market capitalization relative to Bitcoin, data from international ETP markets, and the potential influence of the carry trade strategy.

However, he acknowledged the possibility of net outflows from the ETH ETPs after the initial launch, considering traders involved in discount arbitrage aggressively redeem their positions from Grayscale Ethereum Trust (ETHE). A similar trend was observed from Grayscale’s Bitcoin Trust when the Bitcoin ETFs were launched in January.

Despite this, Hougan believes the Ethereum ETPs will succeed because the underlying asset is one of the best-performing assets ever.

BTC and ETH relative size

The Bitwise CIO explained that he expects investors to allocate funds to spot Bitcoin and Ethereum ETFs in proportion to their market caps, which are currently $1.26 trillion and $432 billion, respectively. This suggests a weighting of around 74% for Bitcoin ETFs and 26% for Ethereum ETFs.

Hougan furthered that US spot Bitcoin ETF’s assets under management (AUM) should increase to at least $100 billion by the end of 2025 as these products mature and gain approval on platforms like Morgan Stanley.

Considering this, Hougan stated that Ethereum ETFs must attract $35 billion in 18 months to reach parity. However, when Grayscale Ethereum Trust’s $10 billion AUM is removed, the figure drops to $25 billion.

International ETP

Hougan noted that data from the European Bitcoin and Ethereum ETP markets revealed AUM ratios of 78% for Bitcoin and 22% for Ethereum products. In Canada, these figures stood at 77% for Bitcoin and 23% for Ethereum.

According to him, the similarity in asset splits between the two regions suggests that this distribution reflects the relative demand for Bitcoin and Ethereum among ETP investors. Hougan stated:

“The fact that the split is roughly in line with the relative market capitalization of the two assets adds to my confidence that this kind of break-down reflects “normal” demand.”

Using Europe’s 22% market share as a proxy, Hougan adjusted his expected net flows from $25 billion to $18 billion.

Carry trade

Hougan also highlighted “the carry trade” as one important factor impacting Ethereum ETF flows. A carry trade is a trading strategy in which investors arbitrage the difference between an underlying asset’s spot and futures prices.

The Bitwise CIO noted that around $10 billion of spot Bitcoin ETF AUM is tied to this trading strategy. However, he doesn’t expect spot Ethereum ETFs to follow the same pattern because “carry trade is not reliably profitable in ETH for non-staked assets.”

He added that he does not expect carry trading to impact the AUM of spot Ethereum ETFs. Considering this, Hougan cut his estimate for net inflows into spot Ethereum ETFs to $15 billion.

According to him:

“[This number] would be a historic success [as] only four ETFs launched since January 2020 have gathered $15 billion in flows.”

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