Spot Ethereum ETFs Debut with Strong Inflows but Face Challenges Unlike Bitcoin

• The initial wave of spot Ethereum exchange-traded funds (ETFs) was launched in the U.S. on July 23, with inflows exceeding $100 million.
• However, Ether (ETH) may not experience the same dramatic rise seen by Bitcoin (BTC) after its ETF launch.
• Experts from CryptoQuant suggest that the distinct multiplier effects of these networks will affect their responses to new investments.

The introduction of spot Ethereum ETFs in the U.S. has generated significant interest with inflows topping $100 million but faces unique challenges compared to Bitcoin ETFs.

First Wave of Spot Ethereum ETFs Kicks Off with Promising Inflows

The first batch of spot Ethereum ETFs in the United States has already seen inflows above $100 million, representing a strong start for these investment products. Despite this, there are concerns that ETH may not witness a surge similar to Bitcoin’s ETF-induced growth earlier this year. The primary reason for this tempered expectation lies in the differences in how each cryptocurrency’s market cap responds to new money.

ETH’s Multiplier Effect Lags Behind BTC

CryptoQuant’s latest report highlights that Ethereum’s (ETH) multiplier effect is significantly lower than that of Bitcoin (BTC). The multiplier is a measurement that shows the ratio of change in market capitalization to realized capitalization, indicating how much the market cap increases per unit of new investment. For Bitcoin, each $1 of fresh investment translates to a $5 increase in market cap. Conversely, Ethereum sees only a $1.34 rise for the same amount of new capital. This lower multiplier suggests that Ethereum’s market value grows more modestly compared to Bitcoin when new funds are injected.

Increasing ETH Supply Since the Dencun Upgrade

The Dencun upgrade, implemented in March 2024, introduced a new mechanism that enables data blobs and significantly reduces transaction fees. While this upgrade has its benefits, it has also resulted in a rapid increase in Ethereum’s supply. Previously, Ethereum’s upgrades included mechanisms to ensure the network remained deflationary by burning a portion of transaction fees. Post-Dencun, the burning mechanism slowed, causing the supply of Ether to rise at its fastest rate since The Merge in September 2022.

Implications of Rising Supply on Ethereum’s Narrative

With the rapid rise in supply, analysts have noted that Ethereum is losing its “ultra-sound money” narrative. This concept posited that Ethereum had the potential to be more sound than Bitcoin by incorporating mechanisms to preserve purchasing power and reduce supply over time. However, the structural changes brought by the Dencun upgrade have shifted Ethereum’s monetary policy, resulting in an increased supply. This undermines Ethereum’s deflationary principles, reducing its attractiveness as a store of value.

Current Trading Volume and Market Sentiment

Despite indicators signaling positive momentum for ETH, its trading volume on centralized exchanges remains a point of concern. Since January, Ethereum’s spot trading volume has been trailing behind that of Bitcoin, reaching only 85% of Bitcoin’s volume in the same period. Historically, since 2020, Ethereum’s trading volume has been just 58% of Bitcoin’s. This lagging volume reflects tempered investor enthusiasm and may influence Ether’s ability to replicate Bitcoin’s ETF-driven price surge.

Conclusion

The launch of spot Ethereum ETFs in the U.S. marks a significant milestone for the cryptocurrency, with strong initial inflows signaling substantial investor interest. However, distinct differences between Bitcoin and Ethereum, including varying multiplier effects and increasing supply since the Dencun upgrade, suggest that ETH may not follow the same bullish path as BTC post-ETF launch. Investors should consider these factors and the current trading volumes to understand the broader market dynamics and future outlook for Ethereum.

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