Grayscale’s ETHE Sees $1.2 Billion in Net Outflows Amidst Market Turbulence

Grayscale’s ETHE Faces Hefty Withdrawals; Other Ethereum ETFs See Gains

Grayscale’s ETHE – In the initial days of trading, Grayscale’s newly converted ETHE spot Ethereum ETF has seen significant net outflows, totaling $1.2 billion. These outflows have overshadowed the net inflows into other spot Ethereum ETFs, raising concerns about ETHE’s future performance. If the current rate of outflows continues, ETHE’s assets under management could be depleted in a matter of weeks. Analysts suggest that until ETHE’s net outflows stabilize, it will likely continue to exert selling pressure on the price of ether.

Contrasting Starts for U.S. Spot Ethereum ETFs

The U.S. spot Ethereum ETFs have had a mixed start this week. Despite strong net inflows into some ETFs, Grayscale’s ETHE has experienced overwhelming net outflows. Nine new spot Ethereum ETFs from eight issuers launched on Tuesday, following approval from the Securities and Exchange Commission in May. BlackRock’s ETHA led the inflows, generating $354.8 million, followed by Bitwise’s ETHW with $249.9 million and Fidelity’s FETH with $180.1 million. However, Grayscale’s ETHE witnessed $1.16 billion in net outflows in just three days.

Grayscale’s Ethereum Trust and ETF Fees

Grayscale’s Ethereum Trust initially launched as a private placement in 2017 and started trading publicly on OTC Markets under the ticker ETHE in 2019. On July 23, ETHE was uplisted to NYSE Arca as one of the newly approved spot Ethereum ETFs. Unlike other spot Ethereum ETFs, ETHE charges a much higher fee of 2.5%, compared to the 0.19% to 0.25% post-waiver fees of other issuers. However, Grayscale’s additional product, the Grayscale Mini Trust Ethereum ETF (ETH), charges the lowest fee of 0.15%.

Net Outflows and Market Impact

From the approximately $10 billion worth of assets (2.9 million ether) that the Grayscale Ethereum Trust held prior to conversion, $9.2 billion was allocated to ETHE and just over $1 billion to its ETH fund. Despite witnessing $119.1 million in net inflows over the past three days, ETHE’s significant outflows and a 7% drop in ether’s price have reduced its assets under management to around $7.5 billion (2.4 million ether). If Grayscale’s spot Bitcoin ETF, GBTC, is any indication, net outflows may slow down eventually. However, with an average net outflow of $385 million per trading day, ETHE’s assets could be exhausted in less than a month.

Comparing Bitcoin and Ethereum ETF Outflows

While GBTC’s net outflows have been slower relative to its assets, ETHE has faced a much steeper decline. GBTC was trading at a discount to net asset value upon launch, whereas ETHE’s discount had closed by the time the spot Ethereum ETFs went live, providing a greater incentive for investors to exit. Additionally, ether has been on a downtrend, falling over 15% since the spot Ethereum ETFs were approved on May 23. Bloomberg ETF analyst James Seyffart noted that the comparatively massive ETHE outflow is a significant factor in ether’s underperformance.

Market Dynamics and Future Predictions

Rachel Lin, CEO and co-founder of SynFutures, described the Ethereum ETF launch as a “sell the news” event, with ether retracing more than 10% from its near-term high. Lin highlighted that unlike Bitcoin, Grayscale’s ETHE ETF is seeing less buying pressure from other ETFs to offset its selling. This imbalance is a key reason behind ether’s recent underperformance. Lin suggested that examining Grayscale’s spot Bitcoin ETF selling patterns could provide insights into ETHE’s future, noting that GBTC lost 50% of its assets in bitcoin terms in the first few months of trading, though the volume of selling has since subsided. ETHE has already lost over 17% of its assets, indicating a potentially more significant downside for ether.

On-Chain Data and Broader Market Trends

On-chain net flow data for ether to custodians could also signal whether ETHE will continue to exert selling pressure. According to CryptoQuant analyst Burak Kesmeci, six of the spot Ethereum ETF issuers, including Grayscale, use Coinbase as a custodian. In the first two trading days, 160,930 ether entered Coinbase, with Grayscale’s ETHE being the primary source of the large ether flows. Kesmeci noted that 47,811 ether exited Coinbase during this period, creating significant selling pressure that contributed to a 12% drop in ether’s price.

Broader Market Corrections and Impact on Crypto

Rachel Lin added that the broader correction in the equities market, with the Nasdaq experiencing its largest red day in over two years, has also impacted the crypto market. If the equities market continues to correct, crypto is unlikely to be spared, at least in the short term. The current market dynamics and substantial outflows from Grayscale’s ETHE suggest continued volatility for ether in the near future.

Frequently Asked Questions (FAQ) about ETHE Spot Ethereum ETF

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