I’ve heard reports that BlackRock is aggressively promoting its Ethereum ETF to “diversify” crypto exposure.
It’s working. Recent flows into ETH ETFs have outpacedthose into Bitcoin. You can see it on this chart:
Why doesn’t this show up in ETH’s price? Why is ETH still down against Bitcoin since the beginning of the year?
Tokenomics and scale
The answer lies in Ethereum’s tokenomics, scale, and how institutional money flows through the system.
Tokenomics. When users are not transacting on the base layer, Ethereum’s protocol creates more tokens than it can burn. Also, because ETH functions as gas to power transactions and smart contracts, recipients have no incentive to hold it. Stakers and recipients often sell.
Upgrades often focus on reducing fees and improving functionality rather than mechanisms that would drive token value or scarcity. That focus on practical utility brings numerous benefits, but not for ETH holders.
Scale. $3.6 billion total inflows over one year doesn’t move a $340 billion asset. Yes, recent flows have outpaced BTC, but they still lag for the year (and mostly pace or lag BTC before April).
I don’t have the technical or statistical sophistication to conduct a thorough analysis, nor have I found anyone who has done so. But if I had to guess, the ETF essentially acts as a pass-through from institutions to stakers and developers. Those flows bypass holders.
In other words, the ETH play is to stake for passive rewards, build apps that generate profit, or trade ETH tokens. Don’t buy the ETF.
I discussed this issue and a recent post for subscribers of my newsletter, Crypto is Easy. Head over to learn more.
Mark Helfman publishes the Crypto is Easy newsletter. He is also the author of three books and a top Bitcoin writer on Medium and Hacker Noon. Learn more about him in his bio and connect with him on Calendly.
