Spot Ethereum ETFs are off to a slow start, but JP Morgan analysts argue that comparing them directly to Bitcoin ETFs is not an accurate reflection of their potential.
The Ethereum price has fallen by 30%, from $3,400 to $2,400, its lowest point since February, while nine Ethereum ETFs have recorded net outflows of $476 million through August since their launch on July 23.
In contrast, Bitcoin spot ETFs saw explosive demand when they launched in January, with cumulative net inflows of $5.4 billion by the end of their first month, pushing Bitcoin’s price above $50,000. But JP Morgan analysts caution that comparing the two assets is not entirely fair, pointing to several factors that explain the disparity.
Analysts say one of the main reasons for Bitcoin’s stronger ETF performance is its established reputation as a “store of value,” a status that Ethereum has not achieved to the same degree. Additionally, Ethereum ETFs do not benefit from staking rewards, meaning these investment products fail to capture Ethereum’s full value proposition.
“Comparing the size of ETH flows to their BTC counterparts is like comparing apples to oranges,” the analysts said, pointing to the differences in market cap, use cases, and opportunity costs between the two cryptocurrencies.
Bitcoin’s total market cap exceeds $1 trillion, while Ethereum’s market cap stands at $280 billion. Given this significant difference, analysts argue that comparing the two based on raw inflows does not give the full picture. When adjusted for market cap, the performance of Ethereum ETFs is more in line with Bitcoin’s than initially appears.
JP Morgan noted that when comparing ETFs’ assets under management (AUM) to the market caps of the underlying cryptocurrencies, the performance was closer than it appeared. In the first months of trading, the AUM of Bitcoin ETFs represented 3% of Bitcoin’s market cap, while the AUM of Ethereum ETFs represented 2.3% of Ethereum’s market cap.
Despite this, Bitcoin ETFs have significantly higher trading volumes, reaching an average of six times their Ethereum counterparts over the last five trading days.
Another factor contributing to the Ethereum ETF outflows is the high cost ratio associated with ETHE, a popular Ethereum investment fund. Analysts also noted that many investors are taking advantage of the fund’s decreasing discount to the underlying price of Ethereum, leading to profit-taking and subsequent exits.
In recent days, flows for six out of nine Ethereum ETFs have been stagnant with no significant changes in either direction, indicating uncertainty in the market.
As Ethereum ETFs struggle to live up to the high expectations set by Bitcoin’s debut, JP Morgan analysts remain cautious but not entirely pessimistic, believing that Ethereum’s long-term potential as a network and the adoption of its technology could lead to stronger ETF performance as the market matures.
*This is not investment advice.
