In the first week of February, U.S Spot Ethereum ETFs showed impressive performances, surpassing Bitcoin ETFs in terms of inflows. Ethereum ETFs saw a total of $420M in inflows, while BTC ETFs only recorded $173M in comparison. This data was tracked by SoSo Value and Farside Investors.
The trend observed in the market indicated that large players took advantage of the discounted window offered by the ETH de-leveraging event earlier in the week. However, according to Coinbase analysts David Han and David Duong, the outperformance in ETH ETF flows was mainly driven by institutional players eyeing the ETH ‘basis trade.’
The CME Ethereum basis trade involves an arbitrage play where institutional investors buy ETH in the Spot market and short it on the Futures side to profit from the yield or basis difference. Han and Duong highlighted that the CME ETH basis trade yielded higher returns than BTC during that week, attracting more investors towards ETH. This strategy involves buying Spot ETH ETFs and shorting CME Futures, leading to outsized inflows to ETH ETFs.
The chart attached shows that the CME ETH yield reached as high as 16%, while the CME BTC basis fluctuated around 10%. This indicates that ETH trading offered more risk-reward opportunities compared to BTC in the past seven trading days. Additionally, there were greater inflows into ETH Futures compared to BTC since the U.S elections in November 2024, with ETH Futures’ Open Interest rates increasing significantly.
Despite the positive outlook for ETH, analysts cautioned that its price could remain subdued in the short term due to negative funding rates and strong competition from Solana. Overall, the trend of institutional investors favoring ETH over BTC in the ETF market indicates a growing interest in Ethereum and its potential for profitable trading opportunities.
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