The fund under the ticker ETHE from Grayscale, which previously existed as a cryptocurrency trust, has seen the most notable outflows since converting to an ETF, with demand for other funds failing to offset them. As a result, the ETFs have collectively recorded net outflows of $546 million since their launch.

Performance of spot Efirium ETFs since 23 September 2024

In this week alone, the instruments have seen net inflows of just $2 million. And on Monday and Wednesday, such exchange-traded funds did not record any investor activity at all.

So why do Efirium-ETFs show such differences in performance? There are several reasons.

What’s going on with Efirium-ETFs

The first problem with ETH exchange traded funds is inflated expectations. Firstly, Etherium-based ETFs seem like a failed project compared to Bitcoin-based exchange traded instruments, which have broken many records and in addition have become the most successful ETFs of all time.

For example, the BlackRock and Fidelity ETFs (IBIT and FBTC) raised $4.2 billion and $3.5 billion respectively in the first 30 days. This beats the previous high of the BlackRock Climate Conscious fund, which raised $2.2 billion in its first month, August 2023.

Efirium and other cryptocurrencies

Although the Efirium-ETFs didn't achieve the same staggering results, three of them still made it into the top 25 best exchange traded funds of the year. We're talking about ETHE, FBTC and ETHW, which attracted $1 billion, $367 million and $239 million in investments respectively. This is not a bad result for funds that are only two and a half months old.

Top 25 ETFs

Similar numbers were commented on by Nate Geraci, head of ETF Store, in an interview with CoinDesk. Here is his rejoinder on the matter.

Spot ETFs on Efirium will never be able to rival Bitcoin ETFs in terms of inflows. ETH capitalisation is about a quarter of BTC’s capitalisation. This should be a reasonable benchmark for long-term demand for an Etherium-ETF compared to a similar instrument based on the first cryptocurrency.

The problem is that large outflows from Grayscale’s ETHE have overshadowed the performance of those funds. Launched in 2017 as a trust, ETHE was originally set up so that investors could not redeem their shares and the funds would remain inside the instrument. That changed on 23 July when Grayscale received approval to convert the trust into a full ETF.

Inflows and outflows of funds from the Bitcoin ETF

Grayscale also faced a similar problem with the Bitcoin ETF, which has recorded more than $20 billion in outflows since January. However, the successful performance of other spot exchange traded funds did offset the losses.

The second problem is the fundamental difference between Bitcoin and Efirium. The latter, after the network’s transition to the Proof of Ownership algorithm in September 2022, has staking, which changes the whole picture and provides validators with additional income for their work. However, in its current format, Efirium ETFs do not allow investors to benefit from this procedure.

Annualised returns of ETH Efirium staking

So holders of ether through ETFs are missing out on this return, which currently sits near the 3.5 percent annualised mark, while paying a management fee that can range from 0.15 to 2.5 percent.

While some traditional investors are willing to sacrifice this income for the convenience and security of ETFs, savvy users of digital assets prefer to look for alternative ways to hold ETH.

Another hurdle for ETFs on Efirium is the difficulty in explaining the altcoin’s core purpose and value to large investors, as it covers several different areas of the crypto industry. Bitcoin, on the other hand, has a firm maximum coin limit of 21 million BTC, making it easy for investors to think of it as “digital gold” to effectively preserve the value of their investment over a long period of time.

Efirium creator Vitalik Buterin

Explaining to investors, including the older generation, the importance of a decentralised platform with support for smart contracts along with the reasons for the rise of ETH is a more difficult task. This was also stated by Bloomberg analyst Eric Balchunas. Here’s his rejoinder.

One of the challenges for an Efirium ETF in penetrating the world of older investors is simplifying its purpose and value into an easily understood format.

Eric Balchunas faced criticism from ETH fans the day before. Still, thanks to his untrue publication, it became clear that the Bloomberg expert does not really understand the peculiarities of the blockchain. Therefore, his comments on the crypto itself should be taken with caution.

Not surprisingly, the Bitwise Foundation launched an educational advertising campaign emphasising the technological advantages of Efirium the day before. It should also be noted that ETH has not performed as well in terms of returns compared to BTC this year.

The second-capitalised cryptocurrency has grown by just 4 percent since January 1, 2024, while BTC is up 42 percent and remains near its all-time highs of 2021.

Changes in the Etherium ETH exchange rate over the past year

Nevertheless, ETH is still in a position to gain fame among the big Wall Street players. Anyway, Efirium is still the most popular platform for the decentralised finance, NFT and other parts of the blockchain world, with billions of dollars worth of coins locked up. So this network and its native token are definitely worth a look.