Ethereum ETF Inflows Won’t Mirror Bitcoin’s: Fireblocks MD

Exchange-traded funds (ETFs) for Spot Ether (ETH) are unlikely to receive the same extent of initial investments that Bitcoin ETFs did, according to an industry leader. Bitcoin ETFs had a remarkable start with a $655.2 million inflow on their first trading day on January 11, far surpassing the expectations at that time. Bitcoin’s role as a dependable store of value made it easier for investors to justify such large investments. In contrast, valuing Ethereum’s technology-driven capabilities proves to be more complex, states Stephen Richardson, managing director of financial markets at Fireblocks.

Richardson explains that the market lacks a general agreement on metrics that can effectively quantify the usefulness or usage rate of the Ethereum blockchain. He emphasizes the necessity for well-defined value metrics and drivers to properly evaluate the adoption or usage of the technology to determine its worth. Consequently, he predicts that Ether ETFs will not see the same level of inflows on their first trading day as Bitcoin ETFs did.

On the launch day of spot Bitcoin ETFs, Bitwise’s BITB product saw the highest inflows, amounting to $237.9 million. This was followed by Fidelity’s FBTC with $227 million and BlackRock’s IBIT with $111.7 million, based on data from BitMEX Research. Discussing the evaluation of Ethereum, Richardson suggests the consideration of total value locked (TVL) as a metric, which is already applicable to Ethereum and secondary blockchains built on it. He believes this metric alone may not suffice.

VanEck, one of the approved applicants for spot Ether ETFs, proposes multiple metrics such as transaction volume, the number of active users, and the count of validators to gauge Ethereum’s adoption and utilization. When asked to provide a compelling argument for potential investors in spot Ether ETFs, Richardson regards Ethereum as the “best bet” to lead the digital asset space and attract more retail and institutional investors to the blockchain.

He further states that Ethereum’s value is inherently tied to the projects and applications developed on top of it. Therefore, investing in Ethereum implies betting on the software’s increasing utilization. Last week, Markus Thielen, head of research at 10x Research, described Ethereum as a “network empowering the future of finance.” Despite this potential, he pointed out that the revenue generated by Ethereum is relatively small compared to its substantial $455 billion market cap, suggesting that it may not yet be a “viable, sufficiently cash-flow-producing investment.”

Thielen also noted that Ethereum’s staking yields fall short compared to United States treasury yields. On May 23, the Securities and Exchange Commission (SEC) approved applications from VanEck, BlackRock, Fidelity, Grayscale, Bitwise, Franklin Templeton, ARK 21Shares, and Invesco Galaxy to issue spot Ether ETFs. These approved ETFs must still await the SEC’s approval of their Form S-1 filings before they can begin trading.

If the Form S-1 filings receive SEC approval, Bloomberg ETF analysts Eric Balchunas and James Seyffart predict that the Ether ETFs might capture between 10-20% of the capital flows that Bitcoin ETFs have garnered. Since their introduction, spot Bitcoin ETFs have accumulated $13.8 billion in net inflows over approximately four and a half months, as reported by Farside Investors. Securing 15% of this amount would result in spot Ether ETFs gathering around $2.07 billion in the same timeframe, a noteworthy accomplishment by industry standards.