The Scoop: Ether ETFs make their entrance

This column was co-written by Frank Chaparro, director of special projects at The Block, and Laura Vidiella of MNNC Group. The views expressed in this column are their own and do not reflect the opinions of their employers.

The Ether ETFs have arrived. The market debut of the new funds tied to the second-largest cryptocurrency saw volumes exceed $1 billion, about 23% of the volumes seen during the first day spot Bitcoin ETFs hit the market earlier this year. In terms of total flows, ETH flows were about 16% of Bitcoin flows.

At this point, it is almost clichéd to say that the launch of spot ETF funds for ether is a truly historic moment for the asset and marks its further institutionalization. As we have often pointed out in this column, the flow gods can giveth, and they can also taketh away.

Today, however, saw net outflows at the time of writing — driven largely by outflows from Grayscale’s ETHE fund. Unsurprisingly, ether is trading down today. As we have often noted in this column, funds often drive price movements. When flows are bad, prices typically decline. Conversely, when flows are good, bitcoin has benefited, and the same will likely follow with ether. But remember, flows are just part of the story. Other factors, including political and macroeconomic influences, can also be at play.

That said, I want to highlight something I discussed with Bitwise CEO Hunter Horsley. While the flow trends for ether and bitcoin are currently similar, it is important to note that these assets are not the same. In the long run, their flow and liquidity profiles will diverge as investors develop specific views on how these assets fit into their portfolios.

For now, it’s easy to argue that both bitcoin and ether are risk assets that will encroach upon the 60% of a portfolio typically allocated to stocks. However, their roles within a portfolio could differ. Bitcoin is often likened to digital gold, while Ethereum is more akin to an open computer network on which a wide range of decentralized applications can be built.

And while bitcoin is a larger asset than ether, investors don’t necessarily view bitcoin as the big apple and ether as the little apple, according to Horsley.

“Bitcoin is an apple and Ethereum is a banana," he said. "They’re both fruits, yes, but there are going to be slightly different journeys: store of value vs. technology platform.”

Most ETFs get only a few hundred thousand dollars of volume on day one. So, compared to the average ETF, these are also historic. Compared to Bitcoin ETFs, it's about 20% of the volume. That’s significant, especially considering it's summer and Ethereum’s market cap is only 30% of Bitcoin’s.

A final note: Horsley believes hedge funds were lighter this time around, as were the Grayscale refugees. Retail investors were definitely present, and Bitwise saw several RIAs, family offices, and institutional buyers yesterday.