USD
Ethereum’s Exchange Traded Funds (ETFs) saw $787.6m of net outflows during a four-day period last week, including a $309.9m single-day outflow from Grayscale’s ETHE fund on September 5.
Although it represents one of the most severe movements since the products were launched in July 2024, analysts are pointing to the move being a correction of position after massive inflows during August, as well as a repositioning out of Ether and into Bitcoin during uncertain times.
Crypto Investment
Bitcoin was developed as a means of value transfer between users – more akin to digital cash than stocks and shares. While it has become increasingly popular for remittances and borderless payments, cryptocurrency’s most common use is in investment. The evolution of the cryptocurrency market has not only seen more cryptocurrency trading pairs, but it has also seen more diverse investment opportunities.
Crypto leverage trading, for example, enables investors to speculate with price predictions, effectively amplifying risk and reward, and it is available with some of the biggest and most popular cryptocurrencies.
Another form of crypto investment, which has gained traction in the past couple of years, is that of the ETF. Bitcoin ETFs launched in January 2024, closely followed by Ether ETFs in July of the same year. The move came after the courts ruled against the SEC’s prevention of these products. And the market reacted very positively, buoyed by the likely injection of institutional cash.
ETF Performance
After early interest in ETFs, Ethereum products had seen a subdued first half of the year. They experienced some recovery in June, but July set records with a monthly intake of $5.4bn, and during July and August, Ethereum products saw net intake of $9.5bn, compared to Bitcoin products’ net intake of just $5.4bn.
However, by the end of August, the positions started to flip. August 29 saw a net outflow of $164.6m, and this continued during the early days of September. On September 5, Grayscale’s ETHE shed $309.9m in a single day. The day before, Fidelity’s FETH saw $216.7m of exits. In total, on Thursday, September 4, there was a total outflow of $446.8m leaving Ether products.
Repositioning
At the same time as Ethereum’s outflow, Bitcoin products saw net inflows with a combined $250m of inflow between September 2 and September 5. This suggests that a lot of the outflow from Ethereum was institutional repositioning – funds moving their money from Ethereum products to Bitcoin products, a move akin to a price correction on the open market.
Ethereum hit its all-time high towards the end of August, surpassing its previous best set in November 2021, followed by some consolidation. This likely also led to institutions cashing in some of the considerable profits made over the previous months.
Reduction In Risk
Analysts confirm that repositioning was likely the cause of much of Ethereum’s ETF outflow. They also point to the fact that this repositioning is likely a result of institutions looking for less risk amid periods of financial uncertainty.
While Bitcoin is still highly volatile compared to other investments and fiat currencies, it is considered more of a safe haven than Ethereum. Therefore, investors, especially institutional investors, are more inclined to sink their dollars into BTC than ETH when the economic situation looks challenging.
Soft Labor Data
At the beginning of September, the Bureau of Labor Statistics released its report highlighting the state of the labor market under Donald Trump’s stewardship. The figures didn’t make for positive reading and, worse still, they underperformed expectations.
In August, only 22,000 jobs were added, which was considerably lower than the 76,500 forecasted new jobs. Furthermore, June saw a decline in positions of 13,000 – the first fall in four years. Unemployment also rose to 4.3%, which is a record level since 2021.
Recession Fears
Although fears have abated somewhat in the past couple of days, early September saw many economists highlighting the likelihood of the country entering recession.
Recession fears were caused by the soft labor data and exacerbated by the ongoing feud between President Donald Trump and the Federal Reserve over the Fed’s seeming unwillingness to drop interest rates as quickly as Trump wants.
Recession fears and poor labor data likely led to institutions pulling out of Ethereum ETFs. Some of that money may have exited the crypto industry altogether, but at least a decent portion of it seemingly went back into Bitcoin ETFs instead.
Ether Prices
A year ago, Ethereum was trading at less than $1,800. It saw a sharp increase in November, immediately following Trump’s Presidential victory. However, alleged inactivity on the cryptocurrency regulation front saw ETH drop from $3,150 in the middle of December to a 12-month low of $1,100 in April. Since then, ETH has rebounded and posted a new all-time-high price of $4,950 on August 24. Prices are now ranging between $4,250 and $4,400.
What Next For ETFs And Regulatory Changes?
Since Trump’s inauguration and the replacement of crypto-sceptic SEC-chairman Gary Gensler, there has been a lot of attention paid to which cryptocurrencies are most likely to get the ETF nod next. Solana, which already enjoys considerable institutional investment, as well as Ripple, Dogecoin, and Cardano, are among the favourites, with dozens of filings for ETFs based on these currencies already filed, while there are some speculative investors who believe meme coins like TRUMP are also set to enter the fray.
