Bitfinex attributes Ethereum’s 40% decline following the ETF announcement to a typical ‘sell-the-news’ response.

Bitfinex analysts indicated that Ethereum’s (ETH) 40% drop following the introduction of spot ETH exchange-traded funds (ETFs) in the US is a typical “sell-the-news” response.

The most recent edition of the “Bitfinex Alpha” report notes that Ethereum ETFs are encountering significant obstacles as considerable outflows continue to adversely affect Ether’s performance, worsening the asset’s underperformance in comparison to Bitcoin.

The report emphasized the negative net flows of spot Ethereum ETFs — currently totaling $420 million in outflows — as the primary factor driving ETH’s price decline in recent weeks.

It further mentioned that substantial selling from market makers such as Jump Trading and Wintermute, along with a macroeconomic disruption resulting from Japan’s recent interest rate increases, have also played a role in the downward trend.

Ethereum weakness

The report states that the Ethereum ETF market has experienced notable volatility in fund flows, contributing to the observed weakness in Ether’s price relative to the broader cryptocurrency market.

On Aug. 5, the ETH/BTC pair reached its lowest point in over 1,200 days, falling to 0.0367 — a significant drop from its peak in February 2021.

The report noted that the ETH/BTC pair has been on a downward trajectory since the Ethereum Merge in September 2022, and this latest movement further intensifies concerns regarding Ethereum’s relative weakness.

Bitfinex analysts suggest that a significant factor behind this underperformance is the influence of Bitcoin ETFs, which have effectively attracted passive flows and heightened demand for BTC. This situation has left Ethereum ETFs struggling to garner the same level of investor interest, even as they work to establish their presence in the market.

The ongoing weakness in ETH/BTC indicates that more profound market dynamics are influencing the situation beyond the mere existence of institutional investment products.

Divergent ETF performance

Ethereum ETFs have displayed some signs of recovery, particularly with BlackRock’s iShares Ethereum Trust (ETHA), which saw over $100 million in inflows on two separate occasions in late July and early August. As of last week, ETHA’s total inflows had neared $977 million, suggesting some resilience amid broader market difficulties.

Conversely, Grayscale’s ETHE has experienced significant outflows, exceeding $2.4 billion since its transition to an ETF. This considerable outflow reflects a cautious sentiment — or potentially a negative outlook — among institutional investors regarding this particular ETF.

The report attributes ETHE’s challenges to its pricing, which was at a 20% discount to the underlying ETH price even weeks after its conversion. This discount, caused by arbitrage traders taking profits, has persisted, resulting in continued outflows, although the rate has slowed recently.

Importantly, the rate of ETHE outflows has outpaced those from Grayscale Bitcoin Trust (GBTC). On the 20th trading day post-launch, ETHE assets under management were at 70% compared to pre-launch levels, while GBTC was at 76.3% for the same timeframe.

The ongoing trend raises concerns about the efficacy of Ethereum ETFs in aligning market trends between ETH and BTC. The sustained underperformance of ETH against BTC suggests that deeper market forces are influencing the situation beyond the mere availability of institutional investment products.

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