Weekly Institutional Insights — ETH Spot ETF Debuts Yet to Impress in the Midst of Market Adjustments

Jul 29, 2024: Our weekly Institutional Insights explores the latest market developments, including market performance, industry news, exchange-traded fund (ETF) flows, trending topics, upcoming events, and token unlocks, aiming to supercharge your crypto trading.

Enjoy our weekly take on the market!

Macro Overview — U.S. Economy Remains Strong

The U.S. economy grew faster than expected in the second quarter of 2024. Gross domestic product (GDP) increased at an annualized rate of 2.8% in the April–June period, up from 1.4% in the previous quarter, demonstrating that consumer demand remains resilient despite higher borrowing costs.

The main driver of growth was personal spending, which advanced 2.3%, exceeding projections. According to the Bureau of Economic Analysis report, a closely watched measure of underlying inflation also rose 2.9%, easing from the first quarter but still above estimates.

The central bank is likely to start cutting interest rates as soon as September 2024, though it will need to strike a fine balance to cool the labor market sufficiently without causing widespread job losses. Unemployment has now risen for three straight months.

Looking ahead, forecasters expect the U.S. economy to decelerate more notably in the second half of the year as the labor market loses steam, slowing income growth and weighing on consumer spending. Recent earnings reports from major companies have also indicated Americans are starting to pull back and stretch themselves financially.

Weekly Crypto Highlight — ETH Spot ETF Debuts Have Yet to Gain Traction in the Midst of Adjustments

The Launch of Ethereum ETFs

The launch of Ethereum (ETH) Spot exchange-traded funds (ETFs) on July 23, 2024 has shown promising initial results. The ETFs drew in over $100 million in net inflows on their first day of trading. However, these figures fell short of the historic debut of Bitcoin ETFs in January 2024. Nonetheless, it’s important to note that institutional interest takes time to build, and the close proximity of the launch to the end of the quarter may have impacted the initial inflows.

Ethereum Spot ETF Performance

Initial trading volume for the Ethereum Spot ETFs was impressive, surpassing analysts' expectations. Bloomberg data revealed that the products logged $107 million in net inflows, with BlackRock's iShares Ethereum Trust ETF (ETHA) leading the way with $266.5 million, followed by Bitwise's Ethereum ETF (ETHW) at $204 million. In total, Ethereum Spot ETFs saw over $1 billion in trading volumes on their first day.

However, this performance was overshadowed by significant outflows from Grayscale's Ethereum Trust (ETHE), which totaled $484.1 million. Despite these outflows, the net positive inflows for the new ETFs were seen as a good start, although they still represent only a fraction of the inflows seen with Bitcoin ETFs.

Comparison With Bitcoin Spot ETFs

Bitcoin Spot ETFs set a high benchmark with their January 2024 debut, pulling in $12.7 billion over the first three months. Based on the projection from the first week of trading, ETH Spot ETFs could only achieve roughly 10% to 15% of what Bitcoin ETFs achieved in a similar time frame.

Yet, Bybit remains optimistic about the potential of ETH Spot ETFs. The firm projects that the total assets under management (AUM) of ETH Spot ETFs in the U.S. market could be between $8 billion and $20 billion, potentially reaching around 30% of Bitcoin Spot ETFs' AUM in the first six months. In an optimistic scenario, Bybit expects a cap of $20 billion in inflows to these ETFs, assuming that inflows to ETH Spot ETFs don't have a significant cannibalization effect on Bitcoin Spot ETFs, and that all the new money is directed toward these investments.

Market Reactions and Institutional Interest

The launch of Ethereum Spot ETFs coincided with a Q1 2024 earnings release from Big Tech. The market is retreating from the fabulous gains made during the first half of 2024. When the market stabilizes and the selling pressures from ETHE is reduced, we may see real institutional demand for ETH.

Looking Ahead

Early trading data indicates that significant institutional interest has materialized for Ethereum Spot ETFs. The first day of trading saw some large chunks of volume, typically indicative of institutional buyers. This early institutional interest is crucial for the long-term success of Ethereum Spot ETFs.

Bitcoin Spot ETF Inflows?

Total Bitcoin Spot ETF Flows. Source: CoinGlass, as of Jul 18, 2024

Recently, the price of Bitcoin has remained steadily above $67,000. Over the past week, we’ve seen net inflows of capital into the cryptocurrency market overall. The drawdown or decline in the equity (stock) market hasn’t significantly passed through or impacted the cryptocurrency market so far, and Bitcoin, the leading cryptocurrency, is still enjoying a bullish rally.

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