Decline in Ether Trading Activity Following ETF Launch

Decline in Ether Trading Activity Post-ETF Launch

In late July, the U.S. saw the introduction of exchange-traded funds (ETFs) linked to the price of ether (ETH), offering investors a new pathway to gain exposure to this cryptocurrency without the complexities of direct storage. However, since the launch, there has been a notable decline in trading activity surrounding ether derivatives on the Chicago Mercantile Exchange (CME), as reported by CCData, a London-based digital assets data provider.

In August, the trading volume for ether futures experienced a significant drop of 28.7%, totaling $14.8 billion, marking the lowest level since December 2023. Similarly, the volume of ether options saw a sharp decline of 37%, reaching only $567 million. CCData remarked, “This decline in trading volumes for ETH instruments suggests lower-than-expected institutional interest in the asset, particularly following the launch of spot ETH ETFs.” Furthermore, they pointed out that the reduced inflows into spot ETH ETFs during August further corroborate this trend. The report also mentioned that seasonal factors during August might have contributed to reduced trading activity, a trend that is expected to persist into September.

Prior to the introduction of spot ETFs, futures and futures-based ETFs were the only regulated options accessible to traditional institutions in the U.S. Generally viewed as more advantageous, spot products are less susceptible to issues such as “contango bleed,” which can affect futures-based ETFs. However, despite the advantages, demand for spot ETFs has not been as robust as anticipated.

Data provided by Farside Investors indicates that ether ETFs have recorded a net outflow exceeding $500 million since their launch. In stark contrast, Bitcoin ETFs attracted a net inflow of over $300 million within the first six weeks of trading.

Market analysts from DBS Treasuries commented on the situation, stating, “The launch timing of U.S. spot Ether ETFs on 23 July turned out to be less than ideal, coinciding with a tech stock sell-off. Ether’s high beta (~2.7) indicates that it tends to incur larger losses during periods of risk aversion, and since the launch, Ether prices have experienced a 30% drawdown.” In August alone, Ether’s price plummeted over 22%, reaching $2,512, representing its most significant monthly percentage decline since June 2022, amid turbulent conditions in traditional markets and challenges facing the leading cryptocurrency, Bitcoin.

Shift in Market Sentiment Towards Bitcoin

On a global scale, there is a noticeable shift toward Bitcoin, the leading cryptocurrency, suggesting that crypto investors are becoming more risk-averse as the bullish market momentum falters. During August, trading volume for Bitcoin futures on the CME increased by 3.74%, amounting to $104 billion, according to CCData. Conversely, the volume of Bitcoin options traded fell by 13.4%, totaling $2.42 billion.

Data analyzed by Wintermute reveals that Bitcoin futures now represent 48% of the total notional open interest in the crypto futures market, while alternative cryptocurrencies, including ether, comprise the remaining portion. In March, when market optimism was at its peak, Bitcoin accounted for only 31% of the global open interest.

Jake Ostrovskis, an over-the-counter trader at Wintermute, noted, “This shift toward higher market cap assets like Bitcoin signals a more conservative market sentiment, with traders displaying less appetite for risk and speculative positions in smaller, more volatile cryptocurrencies.”