The approval of Bitcoin spot ETFs opened the gates for many new investors to enter the cryptocurrency market and allocate Bitcoin in their portfolios. However, the potential impact of an Ethereum spot ETF appears less straightforward.
When BlackRock initially filed for a Bitcoin spot ETF, Bitcoin was trading at $25,000. Since then, Bitcoin has delivered a 2.6x return, while Ethereum has returned 2.1x. From the cycle low, both assets have achieved roughly 4x returns. This raises a critical question: how much upside can an Ethereum spot ETF actually provide? Without new models to improve its economic structure, Ethereum may not see significant price appreciation.
Analyzing Capital Flows
Bitcoin spot ETFs have accumulated approximately $50 billion in assets under management. However, after excluding pre-existing Grayscale Bitcoin Trust (GBTC) assets and accounting for substitutions—such as selling futures or spot positions to buy spot ETFs—the net inflows since launch amount to roughly $14.5 billion. Yet, not all these inflows represent new capital.
A substantial portion originates from delta-neutral strategies like basis trading (selling futures and buying spot ETFs) and conversions from existing spot holdings. Analysis of CME data and ETF holder patterns suggests that about $4.5 billion of net flows came from basis trading. Additionally, large holders like BlockOne converted an estimated $5 billion worth of spot Bitcoin into ETFs. After adjusting for these flows, the true net new purchases for Bitcoin spot ETFs amount to approximately $5 billion.
Projecting Ethereum ETF Flows
Bloomberg ETF analyst Eric Balchunas estimates that Ethereum flows could be around 10% of Bitcoin’s. This would imply $500 million in true net purchases over six months, with reported net flows of $1.5 billion. While these estimates may not be precise, they reflect sentiment among traditional financial institutions.
A more optimistic projection suggests Ethereum flows could reach 15% of Bitcoin’s. Adjusting for Ethereum’s market cap (about 33% of Bitcoin’s) and an “access coefficient” of 0.5, true net purchases could reach $840 million, with reported net flows of $2.52 billion. Given that Grayscale’s Ethereum Trust (ETHE) trades at a lower premium than GBTC did, an optimistic scenario might yield $1.5 billion in true net purchases and $4.5 billion in reported flows—about 30% of Bitcoin’s volume.
Regardless of the scenario, the projected $1.5 billion in net new purchases for an Ethereum spot ETF pales in comparison to the $2.8 billion already流入 Ethereum derivatives markets, not even including spot buying in anticipation of ETF approval. This suggests that much of the potential positive impact may already be priced in.
Understanding the “Access Coefficient”
The access coefficient adjusts for liquidity differences between Bitcoin and Ethereum. Bitcoin benefits more from ETF accessibility because it attracts macro-focused institutions like hedge funds, pensions, and sovereign wealth funds that face regulatory and operational barriers. Ethereum, often viewed as a tech asset, appeals more to venture capital firms, crypto funds, and retail investors who already have access to crypto markets. The 50% adjustment is derived from comparing the open interest (OI) to market cap ratios of Bitcoin and Ethereum on the CME.
Before any spot ETF approval, Ethereum’s OI on the CME was significantly lower than Bitcoin’s—0.3% of supply versus 0.6%. Some interpret this as a sign of early potential, but it may also indicate weaker institutional interest. Wall Street traders, who often have early insights, have shown a clear preference for Bitcoin ETFs. Their reluctance to engage similarly with Ethereum may reflect concerns about liquidity or demand.
How Did $5 Billion Push Bitcoin from $40k to $65k?
The straightforward answer is that $5 billion alone didn’t achieve this. Bitcoin is globally recognized as a portfolio asset and has attracted substantial long-term holders like MicroStrategy, Tether, family offices, and high-net-worth individuals. Ethereum also has large holders, but the scale is likely smaller.
Before spot ETFs, Bitcoin reached an all-time high of $69,000 with a market cap exceeding $1.2 trillion. Institutions already held significant amounts of crypto. Coinbase custodied $193 billion, with $100 billion coming from institutions. In 2021, Bitgo reported assets under custody of $60 billion, and Binance held over $100 billion. Six months after launch, Bitcoin spot ETFs held 4% of Bitcoin’s total supply.
The crypto market is often underestimated in terms of wealth and liquidity. The average U.S. household income is $105,000, and there are 124 million households, implying $13 trillion in annual income. The U.S. represents about 25% of global GDP, suggesting worldwide income of around $52 trillion. With global crypto ownership at 10% (15% in the U.S., 25-30% in UAE), even a 1% annual income allocation would mean $52 billion in annual Bitcoin purchases—$150 million per day.
When Bitcoin spot ETFs launched, entities like MicroStrategy and Tether bought billions worth of Bitcoin, often at lower prices. Many believed ETF approval was a signal to sell, leading to substantial short-, medium-, and long-term positions being sold and later repurchased. Additionally, once ETF flows demonstrated a clear uptrend, short sellers were forced to cover. Open interest actually decreased before ETF approval, highlighting market dynamics.
Ethereum’s Unique Positioning
Ethereum’s price is currently 4x above its pre-ETF-approval low, while Bitcoin is 2.75x. Crypto-native exchange open interest has increased by $2.1 billion, nearing all-time highs. The market is efficient, and many crypto natives expect Ethereum to replicate Bitcoin’s ETF success.
However, these expectations may be overly optimistic and disconnected from traditional finance preferences. Crypto-native investors may have a higher mental allocation to Ethereum, but large non-crypto capital allocators are likely to show less interest.
A common narrative in traditional finance is that Ethereum is a “tech asset”—a global computer, Web3 app store, or decentralized finance settlement layer. While compelling in the last cycle due to fee growth and DeFi/NFT activity, this argument is harder to justify now. Fee growth has stagnated or declined. With annualized revenue of $1.5 billion, Ethereum trades at a 300x P/E ratio, which is negative after adjusting for inflation. How can analysts justify this to family offices or macro funds?
I expect initial ETF flows for Ethereum to be modest for two reasons. First, approval was somewhat unexpected, leaving issuers little time to persuade large holders to convert to ETF形式. Second, the incentive to convert is weaker because holders would have to give up staking or DeFi yield opportunities. Note that only 25% of Ethereum is currently staked.
Does this mean Ethereum will go to zero? Certainly not. At some price level, it will be considered fair value. However, if Bitcoin rallies to $100,000 in Q4 2024 or Q1 2025, Ethereum may surpass its all-time high, but its ratio against Bitcoin is likely to decline. Long-term, developments like asset tokenization and blockchain-based financial infrastructure led by firms like BlackRock could add value, though the timing and magnitude remain uncertain.
I anticipate the Ethereum/Bitcoin ratio will continue its downward trend, trading between 0.035 and 0.06 over the next year. Although the sample size is small, each cycle has seen lower highs for this ratio, so this should not be surprising.
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Frequently Asked Questions
What is the main difference between Bitcoin and Ethereum ETFs?
Bitcoin ETFs are primarily seen as a macro asset and digital gold, attracting institutional investors like pensions and sovereign wealth funds. Ethereum ETFs are often marketed as tech investments, appealing to those interested in decentralized applications and smart contracts. This fundamental difference influences the flow of capital and investor demand.
How do ETF flows affect cryptocurrency prices?
ETF flows introduce new capital into the market, increasing demand. However, price impact depends on existing liquidity, market sentiment, and broader macroeconomic factors. For Bitcoin, true net new purchases of $5 billion contributed to significant price appreciation, but this was amplified by existing market dynamics and institutional interest.
Why might Ethereum ETF flows be lower than Bitcoin's?
Ethereum has a smaller market cap and different investor base. It is less appealing to large traditional institutions due to its perceived complexity and regulatory uncertainties. Additionally, holders may be reluctant to give up staking rewards, reducing conversion rates to ETF形式.
Can Ethereum’s technology narrative drive future value?
While Ethereum’s utility as a platform for decentralized applications is promising, current revenue metrics and fee structures do not strongly support high valuations. Future value depends on widespread adoption, scalability improvements, and successful implementation of tokenization projects by major financial institutions.
What are the risks of investing in cryptocurrency ETFs?
Rights include regulatory changes, market volatility, liquidity risks, and technological vulnerabilities. ETFs also introduce counterparty risk, as investors rely on the issuer and custodian. It’s essential to assess personal risk tolerance and investment goals before allocating funds.
How should investors approach the Bitcoin vs Ethereum decision?
Investors should consider their investment thesis: Bitcoin is often viewed as a store of value and hedge against inflation, while Ethereum is seen as a bet on the future of decentralized technology. Diversification across both may be prudent, but understanding the distinct risk-return profiles is crucial.
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In summary, while Ethereum spot ETFs may attract some new capital, their impact is likely to be muted compared to Bitcoin. Investors should temper expectations and focus on long-term fundamentals rather than short-term flow-based price predictions.