Ether Spot ETFs Could See Up to $5.4B of Net Inflows in First 6 Months: Citi

Spot ether exchange-traded funds are expected to see 30%-35% of bitcoin ETFs' net inflows, and may disappoint due to other factors such as the lack of staking, the report said.

A recent analysis by Citi suggests that upcoming spot ether (ETH) exchange-traded funds (ETFs) in the U.S. could see net inflows ranging from $4.7 billion to $5.4 billion over the first six months of trading.

This projection is based on an assumption that spot ether ETFs will attract 30%-35% of the inflows seen by spot bitcoin (BTC) ETFs, factoring in the relative size and liquidity of the two crypto markets. However, the report notes that several other factors could lead to lower inflows than anticipated.

"We note that several factors could skew the distribution to the downside," analysts led by Alex Saunders wrote in the March 10 research note, adding that the analysis suggests a beta of ether returns relative to such flows that is likely to be lower than the reality.

"One reason is that while ETH may offer diversification benefits in the long-term, given its different and more extensive set of use-cases, this is currently not the case."

U.S. investors who would be likely to buy spot ETFs, as opposed to the respective tokens, may view bitcoin and ether as similar enough to split their allocations between the two cryptocurrencies, rather than viewing them as distinct assets, the report said. That would意味着ether could see a portion of the flows that had been earmarked for bitcoin ETFs rather than fully incremental new demand.

Another factor that could limit inflows into ether spot ETFs is the lack of staking, which is a key mechanism for earning yield on ether holdings. Bitcoin ETFs, on the other hand, offer exposure to the cryptocurrency's mining rewards, which could make them more appealing to investors seeking income.

"Bitcoin also benefits from first-mover advantage, which saw billions of dollars of inflows and strong BTC outperformance prior to ether ETF listing approval in May," the analysts wrote.

On the other hand, the timing of the spot ether ETF launches may coincide with an increasingly dovish Federal Reserve, which could lead to lower interest rates, a stronger stock market and a weaker U.S. dollar, which are macroeconomic factors that could support demand for cryptocurrencies, the report said.

"This bodes well for crypto relative to the H2 2022 environment, which saw rising rates, a weaker dollar, and equities that outperformed crypto," the analysts wrote.

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