Ether, bitcoin, and futures-based exchange-traded funds (ETFs) are currently in the spotlight as investors show a preference for ether over bitcoin in a high interest rate environment. However, the recently launched ether futures ETFs have not seen significant demand, causing the ether-bitcoin (ETH/BTC) ratio to lose ground. Since Ethereum implemented Merge in mid-September 2021, the ratio has fallen by almost 30%.
Launch of Ether Futures ETFs
Six ether futures ETFs were launched in the US last week, but the initial response has been underwhelming. The two largest ETFs, VanECK’s EFUT and ProShares EETH, registered an average daily trading volume of only $5 million in the first week, according to Paris-based crypto data provider Kaiko. In contrast, ProShares Bitcoin Strategy saw a first-day trading volume of $1 billion.
Reasons for ETH’s Underperformance
The underperformance of ether is likely due to the ongoing impact of the bear market, which has historically seen traders turn to bitcoin, the oldest and largest crypto asset. Over the past two months, ETH spot trade volume has mostly remained flat, only spiking above $2 billion a handful of times.
Bitcoin’s Dominance in the Crypto Market
The increased haven demand for bitcoin is evident from its dominance rate or the share in the total crypto market, which has risen from 41% to 51% this year. In a higher interest rate environment, ether is at a disadvantage compared to bitcoin. The Federal Reserve has signaled its intention to keep the benchmark borrowing cost above 5% next year, having raised it by 525 basis points since March 2020 to control inflation.
Bitcoin as Digital Gold
Bitcoin is widely regarded as digital gold in the crypto market, thanks to an inbuilt code on its blockchain that reduces the pace of its supply expansion by 50% every four years. The fourth so-called halving is due next year. The regulatory outlook also favors bitcoin, as it enjoys the ‘commodity’ asset category while ETH’s classification remains unclear. The crypto sector’s regulatory issues have a much higher impact on ether.
Enhancing the Appeal of Ether, Bitcoin, and Futures ETFs
To improve the demand for ether futures ETFs, several factors need to be addressed. First, the regulatory environment surrounding ETH must be clarified. This will help investors understand the potential risks and benefits of investing in ether futures ETFs. Second, the bear market’s impact on ether trading volume should be considered. As the market recovers, it is possible that interest in ether futures ETFs will increase.
Future Outlook for Ether and Bitcoin
In conclusion, while ether currently faces challenges in a high interest rate environment and with the launch of futures ETFs, it is essential to monitor the market’s response and regulatory developments. As the crypto market evolves, both ether and bitcoin will continue to play significant roles in the investment landscape. Investors should keep an eye on the ether-bitcoin ratio, as well as the performance of ether futures ETFs, to make informed decisions about their investments in the crypto space.
