In February, inflows into Ethereum-based exchange-traded funds (ETFs) have swelled, bringing with them about 145,000 ETH into these funds this month alone.
That is almost seven times the total net inflows that Ethereum ETFs saw throughout January. The surge in investment can be viewed as an underscoring of interest in Ethereum as a long-term asset vis-à-vis a surge in the interest in cryptocurrencies generally among a largely institutional investor base.
Conversely, during February, Bitcoin ETFs saw net outflows that were modest. While the total leaving funds amounted to 2,214 BTC, this does not necessarily indicate a change in sentiment. It appears that trading in the cryptocurrency realm has slowed down overall, and that funds invested in Bitcoin aren’t being actively managed.
Ethereum ETFs Are Gaining Momentum
Ethereum’s attractiveness to institutional investors has been steadily growing. As of this month, Ethereum-based exchange-traded funds (ETFs) have been garnering favorable attention, with investors pouring almost 145,000 ETH into such funds—this is very much the opposite of what we saw in January. This is a sharp uptick for these investment vehicles, and it signals Ethereum’s ascent toward investment relevance and ecosystem maturation in its ongoing transition, post–The Merge, to proof of stake (PoS) as its primary consensus mechanism. PoS Ethereum is cheaper to operate and more energy efficient, but institutional investors are not smitten with Ethereum just because it’s “green.” They’re interested in Ethereum because they believe it has the potential to be a “big thing” in the ongoing evolution of the crypto economy, and its market cap is currently second only to Bitcoin.
Several reasons account for the move toward Ethereum. Its status as the second-largest cryptocurrency by market cap, alongside its smart contract functions and the burgeoning space of DeFi, gives it a solid footing that is making investors take notice. And now, with Ethereum ETFs attracting some pretty serious investment flows, it seems that institutional players are getting a lot more comfortable with its long-term play as well.
For a long time, Bitcoin was considered the “gold standard” of cryptocurrencies, but now Ethereum offers itself as a unique, alternative option to not just cryptocurrency but traditional financial instruments as well. While some investors of yesterday still view assets like Bitcoin primarily as vehicles for value, Ethereum is helping to pull a certain segment of the financial world into the future by getting them to recognize that there are better use cases for digital assets.
Bitcoin ETFs Experience Modest Outflows
When juxtaposed with Ethereum’s fast-paced expansion, Bitcoin ETFs have seen a dip, albeit not a troubling one, in investor holdings. February saw Bitcoin ETFs experiencing net outflows of a little over 2,200 BTC. And while that number does sound alarming when first encountered, it is worth stressing that these outflows are nothing to get worked up about. They are part of a relatively small, controlled, and healthy decrease in Bitcoin holdings that also accompanies a general downturn in crypto prices.
These modest outflows likely indicate Bitcoin’s current status rather than a fundamental shift away from using it as an investment vehicle. They are far more likely to be a symptom of a slowdown in trading activity that has recently affected all risk assets. Sentiment and volume drive ETFs, and Bitcoin ETFs are not different in this regard. Both have been slower of late. Consequently, outflows might simply reflect a Bitcoin version of a risk-off trade by investors who are uncertain given the current state of the macroeconomy.
Another element affecting the outflows could be the current state of Bitcoin ETF investors. These investors, for the most part, are sitting on substantial paper profits. This is especially the case considering that the top three Bitcoin ETFs have an average cost basis that is still approximately 30% higher than the current spot price of Bitcoin. For instance, investors in $IBIT, $FBTC, and $GBTC have cost bases of $68.3K, $59.5K, and $57.5K respectively. For these fund investors, the incentive to sell, even with some recent price fluctuations, is probably close to zero. In fact, these price dips might be seen as good buying opportunities for fund investors given that they are substantially above their cost bases and working better for them as long-term plays than short-term sell-off reactions.
Bitcoin ETF Investor Sentiment Remains Strong
Even with the recent capital outflows, investor sentiment in Bitcoin ETFs remains fairly robust. The fact that the investors in these funds still seem to be sitting on some handsome paper profits suggests that we’re more likely to see these investors attempted to ride out the waves of market turbulence that we saw in recent days and weeks. Like most ETF investors, Bitcoin ETF investors appear to be more focused on the long-term value of their holdings.
In addition, the significant cost bases of these ETFs suggest that many ETF investors are deeply committed to Bitcoin as a store of value. This aligns with the wider trend of recognizing Bitcoin as “digital gold,” with many institutional investors looking to it as a hedge against inflation and a long-term store of value. Therefore, the outflows we saw in February reflect a natural adjustment in a maturing Bitcoin ETF market and, more importantly, a growing commitment of Bitcoin ETF investors to the asset.
Conclusion
February’s data reveals a sharp divide between the inflows of Ethereum-based exchange-traded funds and the outflows of Bitcoin-based ETFs, but both digital assets are otherwise investment-grade picks in the cryptocurrency landscape. And although a $1 billion net inflow for Ethereum ETFs might lead one to believe the ether is now a serious contender for first place among the asset-class championships, a $1 billion net outflow for Bitcoin ETFs cannot be seen as anything but a dramatic development for the price of bitcoin. Whenever anybody says “bitcoin,” what they actually mean is that.
Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.
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