Ethereum’s recent price recovery has failed to reignite interest in its spot exchange-traded funds (ETFs), with outflows continuing to mount. Despite gaining over 15% in value in the last week, the second-largest cryptocurrency by market cap has seen a significant drop in institutional demand, reflected in large outflows from Ethereum ETFs. The question remains whether this signals a shift in preference towards Bitcoin or a broader caution towards Ethereum’s investment thesis.

Ethereum ETF Outflows Hit $80 Million

On Monday, September 23, Ethereum ETFs witnessed a significant outflow of $79 million, as institutional demand for the asset class weakened. Grayscale’s Ethereum ETF (ETHE) led the decline, reporting outflows of $80.6 million, signaling an increased disinterest from investors. In contrast, Bitwise’s Ether ETF (ETHW) saw a modest inflow of $1.3 million, while other spot Ethereum ETFs registered zero inflows for eight consecutive trading sessions.

These numbers reveal a broader trend: investors, particularly institutional players, seem to prefer Bitcoin over Ethereum in the current market environment. While Bitcoin has benefited from renewed interest following the recent Fed rate cut, Ethereum ETFs continue to struggle with outflows, underscoring a fragile sentiment in the market.

Bitcoin vs. Ethereum: Institutional Preferences Shift

Ethereum’s “world computer” narrative has historically been a unique selling point, but it appears to be losing appeal among institutional investors. According to Peter Chung, head of research at Presto Labs, traditional finance (TradFi) investors are more inclined towards Bitcoin’s “digital gold” narrative, which is easier to understand and aligns more closely with traditional investment strategies.

“Gold’s investment thesis as an inflation hedge is well-known, and therefore, it is not a leap for TradFi investors to wrap their heads around the idea of ‘digital gold,’” Chung explained. On the other hand, Ethereum’s more complex “world computer” thesis can be harder for non-technical investors to grasp, making Bitcoin a more attractive option for those seeking stability and long-term value.

On-Chain Metrics and Market Sentiment for Ethereum

Despite Ethereum’s price recovery, on-chain metrics are not painting a particularly bullish picture. The asset’s recent 15% gain seems to be driven more by macroeconomic factors, like the Fed’s dovish stance, rather than organic demand or positive developments within the Ethereum ecosystem.

Analysts have pointed out that the recent outflows from Ethereum ETFs highlight the uncertainty surrounding the asset. Augustine Fan, head of insights at SOFA.org, commented on this dynamic, stating:

“Will a continued price rally rescue ETH ETF inflows from their current doldrums? The answer likely depends on whether we see another blow-off top in equity markets before November. Ethereum has gained 11% over the past week on no new developments. However, the latest heavy outflow from Ether ETFs indicates uncertain sentiment among investors on its future growth momentum.”

Additionally, the ratio measuring the price strength of Ether relative to Bitcoin has fallen to its lowest point since April 2021, reinforcing Bitcoin’s current dominance in the market. Investors appear to be gravitating toward Bitcoin’s perceived stability, while Ethereum’s higher-risk, high-reward potential is being viewed with more caution.

Dampened Sentiment Due to Ethereum Foundation Selling

Further contributing to the bearish sentiment around Ethereum is the continued selling by the Ethereum Foundation and its co-founder, Vitalik Buterin. This activity has dampened confidence among investors, particularly at a time when Ethereum is already facing institutional headwinds.

As outflows persist and institutional investors appear to lean more heavily towards Bitcoin, Ethereum faces the challenge of regaining its edge. Whether the asset can recover institutional interest will likely depend on broader market trends and how well Ethereum can communicate its long-term value proposition to non-technical and traditional investors.