Winter is Coming for the Crypto Market as Ether Funds Struggle
The Weak Crypto Market Faces Challenges Ahead
The crypto market is currently experiencing a turbulent autumn, and it seems that winter is just around the corner. The much-anticipated launch of a group of exchange-traded funds (ETFs) tracking ether in the United States has provided further evidence of the market’s current state. With investors fleeing from risk amidst economic uncertainty and conflicts in Ukraine and the Middle East, the ETFs launched on October 2nd only managed to attract under $10 million in their first week of trading, according to CoinShares data. In fact, the data shows that overall, crypto products saw outflows of $7.5 million in the week leading up to October 13th.
Senior analyst at K33 Research, Vetle Lunde, commented on the timing of the futures ETFs, stating that it could hardly be worse. This is especially true considering that Treasury yields soared to their highest level in decades during the same week, while investors withdrew money from riskier assets due to the expectation of “higher-for-longer” interest rates. Additionally, ether prices have dropped over 5% this month, and the total cryptocurrency market cap has decreased from $1.15 trillion to $1.12 trillion, as reported by CoinGecko.
ETF Launches Reflect Changing Investor Sentiment
Comparing the current ETF launches to those during the height of the crypto craze in 2021 reveals a significant shift in institutional investor sentiment. The demand for crypto ETFs has been steadily declining, with bitcoin ETFs globally experiencing net outflows of 11,157 bitcoin between August 1st and October 3rd. These types of funds are favored by traditional investors as they provide easier access to crypto assets through regular stock exchanges without directly holding the cryptocurrencies themselves.
Ben McMillan, Chief Investment Officer at IDX Digital Assets, highlighted the need for more clarity around Federal Reserve policy and the likelihood of a recession before making further investments. He stated that investors are now prioritizing defensive strategies and considering speculative assets as a much lower priority, even with compelling growth opportunities.
Bitcoin Remains Relatively Stable
Bitcoin’s status as the original “digital gold” has given it some stability, with declines of only about 2% this month compared to ether’s 5% drop. Bitcoin-focused ETFs saw inflows of $43 million during the week of October 2nd, and bitcoin’s share of the cryptocurrency market cap has slightly increased from 47% to 48%.
While ETFs tracking solely ether futures on the Chicago Mercantile Exchange, such as those from ProShares, VanEck, and Bitwise, have experienced declines of over 6% since their launch, funds that offer exposure to both bitcoin and ether futures have performed better. For example, Bitwise and ProShares’ dual-exposure funds have seen declines of about 3%, while Valkyrie Funds’ ETF has even edged up by 0.3%.
Looking Ahead to the Future of Crypto
Despite the underwhelming response to the ether futures ETFs, there is hope that the use of the Ethereum blockchain by large financial firms to tokenize assets could bring investors back to the table. However, for now, the macro backdrop of economic uncertainty remains the dominant factor influencing the crypto market.
As the weak crypto market faces its challenges, it’s clear that investors are becoming more cautious. Winter may be coming, but it remains to be seen how the crypto market will weather the storm.
