The introduction of a spot Bitcoin ETF opened new avenues for portfolio diversification, bringing BTC to a broader investor base. However, the anticipated impact of an Ethereum spot ETF on ETH's value may be more subdued in comparison.
When BlackRock initially filed for a Bitcoin spot ETF, BTC was trading around $25,000. Since then, Bitcoin has achieved a 2.6x return, while Ethereum posted a 2.1x gain. Measured from the cycle’s bottom, both assets have delivered approximately 4x returns.
A critical question emerges: how much new capital might an Ethereum spot ETF attract? In short, unless Ethereum can significantly improve its economic model and utility, its growth potential may be limited.
Analyzing ETF Net Inflows
Bitcoin spot ETFs have accumulated over $50 billion in assets under management (AUM). While this number appears impressive, a deeper analysis reveals a more nuanced picture.
After adjusting for outflows from GBTC and other structural factors, the net inflow into Bitcoin ETFs is closer to $14.5 billion. Further accounting for delta-neutral strategies—such as basis trades (simultaneously selling futures and buying ETFs) and spot rotation (swapping physical Bitcoin for ETF shares)—the actual net inflow is estimated to be only about $5 billion.
Approximately $4.5 billion is tied to basis trades, and an estimated $5 billion came from large-scale spot rotation by institutions like BlockOne. These strategies do not represent new bullish demand but rather repositioning of existing capital.
Projecting these findings onto a potential Ethereum spot ETF, Bloomberg analyst Eric Balchunas estimates that Ethereum ETF flows may only reach 10% of Bitcoin’s. This would imply reported inflows of around $1.5 billion in the first six months, with actual net inflows closer to $500 million.
My baseline expectation is slightly more optimistic: I estimate Ethereum ETF flows at 15% of Bitcoin’s. After adjusting for Ethereum’s smaller market cap (about one-third of Bitcoin’s) and a reduced "access factor" of 0.5, this results in actual net inflows of $840 million and reported inflows of $2.52 billion.
The access factor reflects that Bitcoin appeals to a broader set of institutional investors—such as macro funds, pensions, and sovereign wealth funds—while Ethereum is primarily favored by crypto-native investors like VCs, crypto funds, and retail users. The latter group faces fewer barriers to direct cryptocurrency purchases, reducing the incremental benefit of an ETF.
In a more optimistic scenario—considering that Grayscale’s ETHE trust holds a smaller percentage of total ETH supply compared to GBTC’s share of Bitcoin—actual net inflows could reach $1.5 billion, with reported flows around $4.5 billion. This would still only represent 30% of Bitcoin’s ETF inflow.
These projections are overshadowed by the $2.8 billion in derivative open interest built up in anticipation of the Ethereum ETF—not even including speculative spot buying. This suggests the market has already priced in much of the ETF’s potential effect.
Notably, ETH’s open interest on the CME represents only 0.3% of its supply, compared to 0.6% for Bitcoin. This may indicate weaker institutional interest ahead of the ETF launch. Informed traders who profited from the Bitcoin ETF cycle do not appear to be making similar bets on Ethereum—a bearish signal.
How Did $5 Billion Push Bitcoin to $65K?
A common question is how just $5 billion in net inflows could help push Bitcoin from $40,000 to $65,000. The answer is that it didn’t—not alone.
Bitcoin benefits from a diverse and growing base of institutional buyers, including companies like MicroStrategy, entities such as Tether, family offices, and high-net-worth individuals. Ethereum also has institutional interest, but on a smaller scale.
Before the Bitcoin ETF launched, BTC already had a market cap exceeding $1.2 trillion. Large amounts of BTC were held in custody at exchanges and institutional platforms—Coinbase alone had $193 billion in assets under custody, with $100 billion from institutional clients. Bitgo reported $60 billion, and Binance held over $100 billion.
After six months, Bitcoin ETFs held just 4% of total BTC supply. This is meaningful, but it represents only a fraction of overall demand.
Another key difference is market positioning. Before the Bitcoin ETF launch, many traders expected a "sell-the-news" reaction. This led to reduced open interest and cautious positioning. When the ETF saw sustained inflows, short covering and renewed institutional interest amplified price momentum.
Ethereum’s situation is different. Even before the ETF decision, ETH had already rallied 4x from its cycle low, compared to Bitcoin’s 2.75x. Open interest in crypto-native derivatives markets increased by $2.1 billion, approaching all-time highs. This suggests that crypto traders are already positioned for ETF success—likely too optimistically.
Crypto insiders often overestimate Ethereum’s appeal to traditional finance. Outside the crypto world, Ethereum is perceived as a tech-oriented and speculative asset—less compelling for large-scale capital allocation.
Ethereum is often pitched as a “tech asset”—a global computer, a Web3 app store, or a decentralized financial settlement layer. While this narrative worked in previous cycles, current on-chain data undermines its persuasiveness.
In earlier cycles, Ethereum could point to rapid fee growth from DeFi and NFTs, suggesting strong future cash flow. Today, fee growth is stagnant or declining. With monthly protocol revenue of around $150 million, a price-to-sales ratio of 300x, and negative earnings, traditional analysts may struggle to justify current valuations to institutional clients.
Additionally, two factors may limit delta-neutral strategies around the Ethereum ETF launch. First, the approval timing surprised many issuers, leaving little time to market the product to large traders. Second, existing ETH holders have less incentive to switch to an ETF if it means losing out on staking yields or DeFi farming opportunities—even though only 25% of ETH is currently staked.
Does this mean Ethereum is doomed? Absolutely not. At a certain valuation, ETH will be considered undervalued. And if Bitcoin continues to rally, Ethereum is likely to follow to some extent.
Before the ETF, I expected ETH to trade between $3,000 and $3,800. Post-ETF, that range may shift to $2,400 to $3,000. If Bitcoin reaches $100,000 in Q4 2024 or Q1 2025, ETH could still make new highs—but its performance relative to Bitcoin will likely weaken.
I expect the ETH/BTC ratio to continue declining over the next year, likely fluctuating between 0.035 and 0.06. While historical samples are limited, each cycle has so far produced a lower high for the ratio—so further compression would not be surprising.
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Frequently Asked Questions
What is the ETH/BTC ratio?
The ETH/BTC ratio measures the price of Ethereum relative to Bitcoin. It is used to evaluate which asset is outperforming the other within a given period.
Why might the ETH/BTC ratio continue to decline?
Ethereum may face weaker institutional demand, slower adoption in traditional finance, and less favorable on-chain economics compared to Bitcoin, leading to relative underperformance.
How do spot ETFs affect cryptocurrency prices?
ETFs can increase accessibility for institutional investors, potentially driving new capital into the market. However, if expectations are already priced in, the actual impact may be limited.
What is delta-neutral trading?
Delta-neutral strategies involve balancing long and short positions to minimize exposure to price movements. They are common in ETF arbitrage and futures basis trading.
Can Ethereum’s staking yield affect ETF demand?
Yes, investors who choose to hold spot ETH can earn staking rewards. ETF holders typically do not receive this yield, which may reduce the incentive to switch from direct ownership to an ETF.
What are the key risks for Ethereum in the near term?
Key risks include declining network revenue, increased competition from other blockchains, and failure to attract sufficient institutional investment post-ETF.
This analysis integrates market data, investor behavior patterns, and structural factors influencing ETF flows. It is intended for informational purposes and does not constitute financial advice.