On 6 October 2023, David Duong, the Head of Coinbase Research, shared insights on LinkedIn regarding the underwhelming market response to the newly launched ETH futures ETFs in the United States. According to Duong, these ETFs failed to generate the same level of excitement and trading volume as the first BTC futures ETF, ProShares’ BITO, which debuted in October 2021.
Trading Volumes and Fund Flows
Duong pointed out that the top ETH futures ETFs collectively saw less than $1.5 million in trading volume on their first day. In stark contrast, BITO experienced over $1 billion in trading volume on its inaugural day, as per Bloomberg data. Additionally, the net inflow into these ETH futures ETFs was less than 2% of what BITO attracted.
Factors Contributing to the Disparity, According to Duong
- Market Timing: Duong observed that the ProShares Bitcoin Strategy ETF had the advantage of launching during the 2021 crypto bull market. In contrast, the ETH futures ETFs were introduced at a less opportune time, during a later market cycle.
- Investment Advisor Familiarity: According to Duong, investment advisors are generally more comfortable with Bitcoin and how it aligns with their clients’ portfolios. Ether is perceived as more intricate and is not as well understood within the investment community.
- Legal Developments: Duong pointed out that a recent court ruling by Judge Katherine Polk Failla in the Risely vs Uniswap case labeled ETH as a crypto commodity. This legal development might have fueled expectations for an ETH spot ETF, which in turn could have lessened enthusiasm for ETH futures ETFs.
- Market Movements: Duong noted that on 2 October and the early morning of 3 October, based on data from Whale Alert, large transactions funneled substantial amounts of ETH into exchange wallets. This activity could have contributed to Ether’s downward price movement. Although Bitcoin also experienced large inflows, Duong believes Ether was more negatively impacted.
Broader Market Concerns
Duong also touched upon the increasing worries about the impact of rising long-end US Treasury yields on long-duration assets like equities and cryptocurrencies. He argued that the concern is less about the absolute levels of these yields and more about their volatile nature.
BTC and US Equities
According to Duong, the correlation between BTC returns and U.S. equity returns, as indicated by the S&P 500, has been gradually increasing. He noted that since mid-September, this correlation has moved from 0.16 to 0.32, based on a 60-day rolling window. Duong believes that the market’s anticipation of spot Bitcoin ETFs in the fourth quarter of 2023 is currently providing a safety net for BTC prices.
Duong concluded by mentioning that crypto-friendly regulatory news, such as the court’s rejection of the SEC’s appeal in the Ripple case, is supporting BTC prices. However, he also cautioned that there remains a non-zero risk of increased short-term volatility for digital assets, which could also impact equities.
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