US Spot Ethereum ETFs Spark Initial Excitement, But Analysts See Minimal Short-Term Price Impact

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The launch of US spot Ethereum exchange-traded funds (ETFs) has fallen short of expectations. Ethereum’s price has dropped since the ETFs began trading. Traders are less interested in investing in ETH now than BTC and SOL.

As a result, analysts are now examining why these new products failed to boost market enthusiasm.

Ethereum ETF Launch Leads to Market Cooldown

Based on this, many investors are withdrawing their money from Ethereum-related products. The Grayscale Ethereum Trust (ETHE) has seen the most significant outflows. According to SoSoValue’s data, about $178.68 million left the market in three days. 

ETHE alone has lost $1.16 billion since the ETF trading started. This massive outflow is partly due to ETHE’s high fees, which are ten times higher than those of its rivals.

Before the launch, experts thought Ethereum ETFs would create a buzz like Bitcoin ETFs did. Instead, the market barely reacted. 

DeFi analyst Ignas shared his disappointment through the X platform on July 25. According to him, Ethereum is stuck and unable to scale its leading network while Solana gains ground.

$ETH is in limbo:

• Ethereum failed to scale the L1 while Solana rapidly gains ground
• L2 scaling isn't adding value to Ethereum (low ETH burn, fragmented liquidity, worse UX)
• Airdrop farming isn't enticing anymore (low rewards)

Even ETFs couldn't ignite FOMO for $ETH pic.twitter.com/lCf7CpfbP4

— Ignas | DeFi (@DefiIgnas) July 25, 2024

Further, Ignas pointed out other issues, such as Ethereum’s Layer 2 solutions, that aren’t adding much value. Instead, they cause low ETH burn, split liquidity, and offer a worse user experience. In addition, even airdrop farming isn’t attractive anymore due to low rewards.

“Even ETFs couldn’t ignite FOMO for ETH,” said DeFiIgnas.

In another X post, he said, “Perhaps my biggest complaint about the modular scaling is that Degen keeps chasing “ETH beta” plays instead of buying just ETH.”

Staking Yields and Complex Mechanics Dampen Interest

Apart from Ignas, SoSoValue, a market analysis firm, highlighted a fundamental problem with Ethereum ETFs. According to the firm, ETH ETFs can’t offer staking yields, which disadvantages ETF investors compared to direct Ethereum holders.

Usually, Ethereum owners can earn 3%- 5% through staking. However, due to regulations, ETF investors miss out on this benefit. 

This yield is a crucial part of Ethereum’s appeal. It acts like a ‘risk-free’ rate in the crypto world. So, without this yield, ETFs seem less attractive. Many investors prefer to hold Ethereum directly or choose other crypto assets with better returns. 

SoSoValue also pointed out that the public’s understanding of Ethereum is limited compared to Bitcoin’s ‘digital gold’. 

Ethereum’s complex mining mechanism and ecosystem make it harder for average investors to understand. Its supply involves tricky calculations, adding another layer of confusion.

Based on these, SoSoValue analysts noted that Ethereum ETFs might not change market pressures much in the short term. According to SoSoValue, Ethereum’s ETF now lacks the power to attract daily inflows as Bitcoin ETFs did, which affects prices. 

Despite these challenges, ETH ETFs could still record a change in price.