Ethereum ETFs: The New Crypto Kid on the Block?

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Ethereum ETFs: The New Crypto Kid on the Block?

Well, well, well, it looks like Ethereum ETFs are giving Bitcoin ETFs a run for their money! In the first week of February, U.S Spot Ethereum ETFs saw a whopping $420M in inflows, compared to a measly $173M for BTC ETFs. That’s according to data tracked by SoSo Value and Farside Investors. 🤑

Some say that the trend is due to large players taking advantage of the discounted window offered by the ETH de-leveraging event earlier in the week. But Coinbase analysts David Han and David Duong have a different theory. They believe that the outperformance in ETH ETF flows is primarily driven by institutional players eyeing ETH ‘basis trade.’ 🤔

CME Ethereum basis trade

CME ETH basis trade refers to arbitrage play where institutional players buy ETH in the Spot market and short it on the Futures side, pocketing the difference (yield or basis). This is common for both ETH and BTC. 🤑

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But according to Han and Duong, CME ETH basis trade had a higher yield than BTC this week. They believe that this is why most large players jumped on ETH by buying Spot ETH ETF and shorting the CME Futures. They said, “It’s notable that the CME ETH basis trade has continued to return higher annualized yields compared to the CME BTC basis trade over the past week. The basis trade may be another reason why we’ve seen outsized inflows to spot ETH ETFs recently.” 🤔

As per the attached chart, the CME ETH yield surged as high as 16% while the CME BTC basis fluctuated around 10%. Simply put, ETH trade offered more risk-reward opportunities than BTC over the last seven trading days. 🤑

Another indicator that supported the aforementioned thesis was greater inflows into ETH Futures, compared to BTC, since the U.S elections in November 2024. The analysts added that ETH Futures’ Open Interest rates (OI) surged from 354K ETH to 1.13M ETH as of early February 2025. 🚀

On the other hand, CME BTC Futures recorded stagnant inflows over the same period. Han and Duong added, “CME BTC futures have also not seen a comparable open interest increase, with CME open interest remaining mostly unchanged (173K BTC on November 1, 2024 to 169K BTC on February 6, 2025).” 😴

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That being said, the analysts also noted that ETH’s price could remain muted in the short term amid negative funding rates and strong competition from Solana. 😕

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2025-02-08 12:10