Ether ETFs Struggle to Impress in Opening Act

Sure, Ethereum ETFs were never going to blow past Bitcoin fund launches, but they haven’t lived up to analysts’ expectations ether.

The funds that track the second-largest cryptocurrency were off to the races in late July, vacuuming up $1 billion in assets on opening day. It was a promising curtain-opener that saw a handful break into the top 50 highest-traded debuts on record. Fast forward four weeks, and the funds are riding at least a nine-day losing streak, and have dropped $481 million in assets as a category since they began trading. After a promising start, ether ETFs are simply stuck in the ether.

“Our research was clear that there was limited demand,” Castle Funds president Peter Eberle told The Daily Upside, adding that institutions that invest are allotting just 1% to 3% of a total portfolio. “ETH and BTC are so highly correlated that an allocation to ETH brings very little benefit to a portfolio.”

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The elephant in the room is the Grayscale Ethereum Trust (ETHE), which was converted into an ETF with a hefty 2.5% fee, and has since dropped $2.5 billion in assets as investors searched for cheaper products. Eight issuers including BlackRock, Invesco, and Fidelity Investments were among those that received the green light in July. Out of the top nine traded ether funds, all except ETHE have net positive inflows, including $1 billion into the iShares Ethereum Trust (ETHA) and almost $400 million into the Fidelity Ethereum Fund (FETH), according to SoSoValue data. 

“It’s a bit more nuanced than: Investors are not digging Ethereum,” Brinker Capital Investments senior portfolio manager Nicholas Codola told The Daily Upside. “Most ETF providers would call getting nine figures in inflows in the first month a success.”

It’s a decidedly more upbeat picture than the headlines suggest, but still a hard sell for financial advisors. While more than 13% of advisors have discussed crypto or included it in portfolios when clients bring it up, only around 3% are actively recommending cryptocurrency to clients, according to a Cerulli report from July. More than half of the 1,500 advisors surveyed had no plans to use it at all. 

Returns are Ethereal. If Bitcoin is considered the on-ramp to crypto, then Ethereum is a bet on blockchain’s future. It’s a proof-of-stake model, and largely seen as a way to invest in digital asset technology and the success of the crypto industry itself. Judging from recent research, cryptocurrency funds are thriving:

• Global crypto exchange-traded products hit a new record of almost $92 billion at the end of July, according to global research provider ETFGI.
• Crypto ETF assets have increased 506% from the start of this year, helped on by billions-of-dollar conversions from Grayscale’s Bitcoin and Ethereum products. Crypto products gathered almost $14 billion in assets globally in July alone. 

Codola added that most of the US funds have more than $50 million in AUM, which is generally a good rule of thumb for a fund’s longevity. “Ethereum ETFs are here to stay,” he said.