Strong Inflows Mark Ethereum ETF Debut, but Bitcoin’s Market Impact Still Superior

• Spot Ethereum ETFs in the U.S. launched with over $100 million in inflows, indicating a promising start.
• CryptoQuant reports that Ethereum’s market multiplier is significantly lower than Bitcoin’s, affecting its growth potential.
• The Dencun upgrade has led to a rapid increase in Ethereum’s supply, impacting its deflationary status.

The first batch of spot Ethereum exchange-traded funds (ETFs) in the United States launched on July 23, drawing in over $100 million. While this shows a promising start for Ethereum (ETH) ETFs, experts say that ETH might not see the same rapid growth that Bitcoin (BTC) experienced when its ETFs were introduced earlier this year.

According to CryptoQuant’s recent weekly report, on-chain analysts explained that the effect of new money flowing into ETH ETFs would be weaker compared to BTC ETFs. This difference is due to the distinct ways each network reacts to new investments.

Analysts pointed out that Ethereum’s market multiplier is lower than Bitcoin’s and has stayed low in 2024. The multiplier measures how much the market value increases relative to the money invested. For Bitcoin, every $1 invested results in a $5 increase in its market cap. In contrast, Ethereum’s market cap only rises by $1.34 for every $1 invested.

The report also highlighted other issues that might prevent ETH from achieving the same growth as BTC after ETF launches. One major factor is Ethereum’s increasing supply.

Since the Ethereum network underwent the Dencun upgrade in March, the supply of ETH has been growing. Dencun introduced a feature for data blobs and significantly lowered transaction fees, which in turn reduced the amount of ETH being burned.

Before the Dencun upgrade, previous updates to the Ethereum network ensured it remained deflationary by burning a portion of transaction fees. Since Dencun, however, ETH’s supply has been increasing at the fastest rate since The Merge in September 2022. Currently, the total and circulating supply of ETH is 120.22 million, with no maximum cap. On the other hand, Bitcoin has a fixed supply limit of 21 million.

Analysts argue that this change in Ethereum’s monetary policy is making it lose its “ultra-sound money” status. The ultra-sound money concept suggests that Ethereum could become more stable than Bitcoin by maintaining features that preserve its value and reduce its supply over time.

Despite signs that ETH prices have bottomed out and indicators showing positive momentum, Ethereum’s spot trading volume on centralized exchanges is still a concern. Since January, ETH’s trading volume has been 85% of Bitcoin’s during the same period, and only 58% compared to Bitcoin since 2020.

While the initial inflows for Ethereum ETFs are strong, the overall impact on ETH’s market value is expected to be less dramatic than that seen with Bitcoin ETFs. Factors like Ethereum’s increasing supply and lower market multiplier contribute to this difference, according to CryptoQuant’s analysis.