Ethereum ETFs Face Challenges: Insights from Bitwise’s CEO
Hunter Horsley, the CEO of Bitwise, recently shared insights on why Ethereum exchange-traded funds (ETFs) have not met trading volume expectations compared to their Bitcoin counterparts.
In a post made on October 21 via X, Horsley acknowledged the underperformance of Ethereum ETFs while noting that funds from reputable firms like BlackRock and Fidelity remain among the top 25 fastest-growing new exchange-traded products (ETPs) in 2023.
Current Standing of Ethereum ETFs
According to recent data from SoSoValue, BlackRock’s ETHA has attracted an impressive $1.45 billion in net inflows. Meanwhile, Fidelity’s FETH and Bitwise’s ETHW have noted net inflows of $498 million and $321 million, respectively. However, overall, Ethereum ETFs have faced about $500 million in negative net flows, primarily driven by significant outflows from the Grayscale Ethereum Trust and lukewarm interest in other ETH funds.
Factors Contributing to Ethereum ETFs’ Performance
Horsley identified several factors influencing the slow start of Ethereum ETFs. The following points summarize his perspective:
- Seasonality of Launch: Ethereum ETFs launched during the summer, a period traditionally marked by low investment activity as investors tend to observe market trends rather than engage in new investments.
- Market Conditions: The launch occurred in a relatively stable market phase, unlike Bitcoin ETFs, which debuted during a bullish trend that garnered much more attention and investment.
- Investor Focus: At the time the Ethereum ETFs were introduced, investor interest was predominantly concentrated on Bitcoin, making it challenging for Ethereum to gain traction.
“For many traditional investors, there has been a need for time to understand how to incorporate Bitcoin after the arrival of these ETPs. With Ethereum arriving in the midst of this focus, it found it difficult to capture the spotlight.”
Concerns Regarding Staking
Horsley also discussed potential issues related to the absence of staking features in Ethereum ETFs. Here are the key takeaways:
- Lack of Staking Yield: He suggested that most ETH holders currently do not stake their assets, indicating that the absence of staking yield may not significantly impact these funds.
- Success in Europe: Bitwise’s European fund, which captures staking rewards while providing Ethereum exposure, has seen substantial growth. Horsley believes that similar offerings could enhance the attractiveness of US-based funds.
- Regulatory Concerns: Staking, a vital aspect of Ethereum’s proof-of-stake model, has faced scrutiny from the SEC, which has raised alarms about the legality of staking services. Consequently, ETF issuers have opted to exclude staking from their offerings due to such legal uncertainties.
Despite the challenges facing Ethereum ETFs, Horsley remains optimistic, asserting that it is premature to assess the long-term potential of these investment vehicles, stating that “the story for Ethereum ETPs is just beginning.”