Bitfinex analysts said Ethereum’s (ETH) 40% decline following the launch of spot ETH exchange-traded funds (ETFs) in the US is an expected “sell-the-news” reaction.
According to the latest edition of the “Bitfinex Alpha” report, Ethereum ETFs are facing substantial challenges as significant outflows continue to weigh heavily on Ether’s performance, exacerbating the asset’s underperformance relative to Bitcoin.
The report highlighted the negative net flows of spot Ethereum ETFs — currently at $420 million in outflows — as the main force driving ETH’s price down in recent weeks.
It added that heavy selling from market makers like Jump Trading and Wintermute, along with a macroeconomic shakeup stemming from Japan’s recent rate hikes, have further contributed to the downtrend.
Ethereum weakness
According to the report, the Ethereum ETF market has seen significant fluctuations in fund flows, contributing to the observed weakness in Ether’s price compared to the broader crypto market.
On Aug. 5, the ETH/BTC pair hit its lowest level in over 1,200 days, dropping to 0.0367, marking a significant decline from its peak in February 2021.
The report added that the ETH/BTC pair has been trending downward since the Ethereum Merge in September 2022, and this recent move further deepens concerns about Ethereum’s relative weakness.
Bitfinex analysts believe a key factor contributing to this underperformance is the impact of Bitcoin ETFs, which have successfully directed passive flows and increased demand toward BTC. This dynamic has left Ethereum ETFs struggling to attract the same level of investor interest, even as they attempt to establish themselves in the market.
The persistent weakness in ETH/BTC suggests that deeper market forces are at play beyond the mere availability of institutional investment products.
Divergent ETF performance
Ethereum ETFs have shown some signs of recovery, particularly with BlackRock‘s iShares Ethereum Trust (ETHA), which recorded over $100 million in inflows on two separate occasions in late July and early August. As of last week, ETHA’s cumulative inflows had approached $977 million, indicating some resilience in the face of broader market challenges.
However, Grayscale’s ETHE has recorded substantial outflows, totaling over $2.4 billion since its conversion to an ETF. This significant outflow reflects a cautious sentiment — or possibly a negative view — among institutional investors toward this specific ETF.
According to the report, ETHE’s struggle can be attributed to its pricing, which was at a 20% discount to the underlying ETH price even weeks after its conversion. This discount, driven by arbitrage traders taking profits, has persisted, leading to continued outflows, although the pace has slowed recently.
Notably, the rate of ETHE outflows has been faster than those from Grayscale Bitcoin Trust (GBTC). On the 20th trading day post-launch, ETHE assets under management stood at 70% compared to pre-launch figures, while GBTC stood at 76.3% for the same period.
The ongoing trend raises questions about the effectiveness of Ethereum ETFs in balancing market trends between ETH and BTC. The continued underperformance of ETH against BTC suggests deeper market forces at play beyond the mere availability of institutional investment products.
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