The euphoria surrounding the launch of spot Ethereum ETFs is fading fast. On July 26, 2024, just three days after their highly anticipated debut, the newly minted Ethereum exchange-traded funds recorded $152 million in net outflows — the second consecutive day of negative flows — as Grayscale’s Ethereum Trust (ETHE) continues to hemorrhage assets at an alarming pace.
TL;DR
- Spot Ethereum ETFs recorded $152.3 million in net outflows on their third trading day
- Grayscale ETHE alone saw $346.2 million in outflows, overwhelming inflows from BlackRock and Fidelity
- ETH price dropped to as low as $3,100 before recovering above $3,200
- Trading volumes declined to $848 million on Day 3, down from $1.1 billion on Day 1
- Total ETHE outflows over three days reached $1.16 billion, representing a 12.6% drop in AUM
Grayscale ETHE Leads the Exodus
The primary culprit behind the persistent outflows is Grayscale’s ETHE, which continues to experience massive redemptions as investors flee its relatively high fee structure. On Day 3 alone, ETHE saw outflows of approximately $346 million, an increase from the $327 million recorded on Day 2. Over the first three trading days, cumulative ETHE outflows have ballooned to $1.16 billion, resulting in a 12.6% decline in assets under management and a 9.1% drop in the actual ETH held in the trust.
For context, these outflows are almost identical in dollar terms to what Grayscale’s Bitcoin Trust (GBTC) experienced during its first three days ($1.17 billion). However, on a relative basis, ETHE outflows are outpacing GBTC by more than 2x — GBTC’s first-three-day outflows only represented 4.3% of BTC held, compared to ETHE’s 9.1% of ETH held. The accelerated pace suggests investors are more eager to exit the Ethereum product, likely driven by a combination of fee sensitivity and broader market uncertainty.
BlackRock and Fidelity Can’t Offset the Damage
It is not all doom and gloom for the Ethereum ETF complex. BlackRock’s ETHA and Fidelity’s FETH have been attracting meaningful inflows, with ETHA ranking among the strongest performers in the ETF space over the past year in terms of Day 1 volume. Bloomberg ETF analyst Eric Balchunas noted that Ethereum ETFs posted the highest Day 1 trading volumes among all ETF launches over the previous 12 months, excluding Bitcoin ETFs.
However, even the combined buying power of BlackRock and Fidelity has not been sufficient to offset the tidal wave of Grayscale redemptions. The structural dynamic mirrors what played out with Bitcoin ETFs earlier in 2024, but the relative impact on Ethereum’s price has been more severe given ETH’s smaller market capitalization and thinner liquidity.
ETH Price Under Pressure
The relentless outflows have taken a toll on Ethereum’s price. ETH traded as high as $3,500 on Tuesday morning when the ETFs launched, only to crash to $3,100 by Thursday afternoon — a decline of more than 10% in just three days. The token managed to recover back above $3,200 after market close, but sentiment remains fragile.
The price weakness is compounded by broader macro headwinds. Traditional equities suffered their worst day in 18 months, with tech stocks leading the decline. Meanwhile, Mt. Gox creditors continue to receive their Bitcoin distributions through exchanges like Kraken, adding additional selling pressure to the crypto market as a whole.
Trading Volumes Holding Steady
Despite the negative net flows, there is a silver lining: trading volumes have not collapsed as many analysts feared they would after the initial hype. Day 1 saw $1.1 billion in volume, Day 2 recorded $937 million, and Day 3 settled at $848 million. While the trend is downward, the declines have been moderate rather than precipitous.
Galaxy Research noted that even during the summer slowdown, Ethereum ETFs saw 23% of the trading volumes that Bitcoin ETFs recorded on their first day back in January — a respectable showing considering the seasonal timing and the fact that Bitcoin ETFs represented the largest ETF launch in history.
What Comes Next for Ethereum ETFs
The key question is how long Grayscale’s outflows will persist. If the Bitcoin ETF experience is any guide, ETHE outflows could continue for weeks or even months before stabilizing. GBTC experienced sustained outflows for several months before the pace gradually decelerated.
In the interim, ETH’s price trajectory will depend heavily on whether BlackRock and Fidelity can scale their inflows to match or exceed ETHE’s redemptions. The competitive dynamics between these products will ultimately determine whether the Ethereum ETF complex transitions from net outflows to net inflows — a milestone that could serve as a catalyst for ETH’s next leg higher.
Why This Matters
The Ethereum ETF launch represents one of the most significant milestones for institutional crypto adoption in 2024. However, the Grayscale overhang demonstrates that product structure matters as much as regulatory approval. Investors are voting with their wallets, opting for lower-fee alternatives from BlackRock and Fidelity over Grayscale’s premium-priced offering. How quickly this rebalancing completes will shape Ethereum’s price trajectory for the remainder of the summer and potentially set the stage for the next major market move.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments are subject to high market risk. Always conduct your own research before making investment decisions.
$1.16B in three days from ETHE alone. Grayscale really thought they could keep charging 2.5% when competitors are at 0.25%
BlackRock ETHA and Fidelity FETH are doing fine. The ETHE bleed was priced in, same playbook as GBTC. Give it a month.
ETH dropping from $3,500 to $3,100 in 3 days on ETF launch is brutal. Everyone expected a pump and got the opposite.