Ethereum: strong outflows from investment products

Investment financial products on Ethereum listed on the stock exchange are experiencing strong outflows. 

In particular, despite the imminent landing on the USA stock exchanges of the new ETH on ETH spot, the last week of June recorded the highest weekly outflow since August 2022.

The investment products on Ethereum

The most well-known investment product is the ETF, which is a single-asset fund fully collateralized in the underlying asset and whose shares are traded on the stock exchange. Being fully collateralized in the underlying asset, the price trend of the shares ends up following that of the underlying asset itself. 

In the USA, however, there are still no ETF on Ethereum listed on the stock exchange, although their actual launch is expected next week.

There are, however, also other investment products. 

First of all, on non-US stock exchanges, such as the European ones, there are many ETPs on different cryptocurrencies. ETPs work in a very similar way to ETFs, albeit with some different technical details.

To produce the analyses regarding this, those investment products listed on the stock exchange are primarily used, as there is a lot of data available for these. 

The outflows on investment products based on Ethereum (ETH)

Collecting this data is CoinShares, which even dedicates an entire section of its site to ETP. 

In the report “Digital Asset Fund Flows | July 1st 2024” published yesterday, they show a chart that clearly shows the continuous outflow over the last three days when the exchanges were open at the end of June.

The chart, titled “Weekly Crypto Asset Flows”, shows the daily inflows or outflows in dollars, and shows how after positive cumulative inflows of 2 billion dollars on June 23, there were three consecutive days of outflows, although the sum of these three outflows is less than the inflows of June 23 alone. 

This is a chart that sums up all the daily inflows and outflows of all the cryptocurrency investment products on the stock exchange, and not just those on Ethereum.

The outflows on Ethereum

The report, however, states that it was precisely the investment products on Ethereum that pushed these outflows, and that this is also changing the sentiment on Bitcoin.

Overall, the last week of June was the third consecutive week of outflows from investment products in digital assets, with a total balance of -30 million dollars. However, they emphasize how last week there was a significant reduction in these outflows.

The largest outflows occurred precisely on Ethereum, with the worst weekly performance since August 2022 (-61 million dollars).

In the last two weeks, outflows from investment products on ETH have amounted to 119 million dollars. From this point of view, Ethereum is “the asset with the worst performance since the beginning of the year in terms of net flows”.

Instead, multi-asset ETPs and those on Bitcoin recorded net inflows, with 18 million and 10 million dollars respectively.

The problem therefore exists only on Ethereum, and not on Bitcoin. 

The other cryptocurrencies

Since the beginning of the year, Bitcoin from this point of view has recorded net inflows of almost 15.5 billion dollars, but much of this is due to the stock market debut on January 11 of the new ETFs. 

Ethereum, on the other hand, since the beginning of the year has recorded net outflows of 25 million dollars, and this contrasts greatly with the performance of Bitcoin ETPs. 

Moreover, since this data does not only concern the US stock markets but also those of the rest of the world, the +41 million dollars on Solana is a very indicative figure regarding the suffering of Ethereum.

Even the ETPs on Litecoin since the beginning of the year have recorded net inflows of 29 million dollars, with +18 million for XRP and even +30 million for LINK (Chainlink). 

Ethereum is the only crypto asset for which, according to CoinShares data, ETPs have recorded net outflows since the beginning of the year. 

The current problem

A very indicative figure, in addition to the one on the enormous success of Bitcoin ETPs, is the one that concerns Solana. 

In fact, in some ways Solana can be considered a competitor of Ethereum. 

However, it is a relatively new crypto project, particularly with regard to DeFi. Decentralized finance is the sector of greatest development for Ethereum, and a significant source of its resounding success. 

Starting from last year, and particularly from October, even on Solana the DeFi sector has begun to expand, and this might have started to erode the seemingly granite primacy of Ethereum in this field. 

Just think that the TVL on Ethereum is still a good 59 billion dollars, while Solana in the DeFi sector is still only fourth for TVL with only 3.5 billion. 

However, since September 2023 it has increased from 300 million (0.3 billion) to 3.5 billion, that is, with a growth from this point of view of over 1,000% in about six months. 

If we take dominance as a reference, in this specific context, Ethereum has gone from September 2023 from 58% to 61%, so it apparently does not seem to be suffering at all. 

Only that Solana in the same period went from 0.8% to 4.6%, and if you exclude the second in the ranking, Tron, which is there only thanks to USDT, Solana is now very close to the third, BSC. 

The future evolution

Soon in the DeFi sector, Solana could be joined by other fierce competitors of Ethereum.

BSC in reality has already been a competitor for more than three years, but its momentum seems to have run out compared to that of Ethereum. 

At the current state, true and proper competitors are not yet clearly emerging, also because the main other chains from this point of view turn out to be Ethereum’s own layer-2s, such as for example Arbitrum. 

However, there are two potential competitors that could emerge in the coming months or years. 

The first is Avalanche, which had already performed well in 2021, and which since 2022 seems to be waiting to recover. 

The second could be TON, which currently still seems a bit behind but is growing a lot.

To tell the truth, TON seems more like a competitor to Solana rather than Ethereum, but if Solana is slowly becoming a competitor to Ethereum, then in the end, TON might also be destined to become one.