Key Takeaways
ETH ETFs outpaced BTC ETFs by 25x in weekly net inflows, pushing CME ETH basis trade to nearly 12%. Will $4K be reachable now?
Ethereum [ETH] has flipped Bitcoin [BTC] on the ETF inflows. During the week, from the 21st to the 25th of July, ETH ETFs saw net inflows of $1.85 billion, about 25x more than $72 million seen by BTC ETFs.
Now the ETH ETF complex holds over $20B in total assets. And half of that was driven by BlackRock’s ETHA, which crossed $10B recently.
Source: SoSo Value
Hedge funds hunt ETH basis trade
But the remarkable ETH ETF flows appeared driven largely by hedge funds hunting for Basis trade.
This is a spread that occurs when funds buy spot ETH ETF and short the asset on CME (Chicago Mercantile Exchange) Futures.
In fact, CME Futures Open Interest also reinforced the above basis trade thesis. Velo data showed that ETH’s interest surged to nearly 2 million coins compared to only 150K BTC on CME Futures.
In addition, ETH CME annualized basis surged to nearly 12% from 8% this week.
Over the same period, BTC Basis fetched 9.4%, confirming that the divergence in the ETH ETF flows from BTC, in the past week, could have been driven by basis trade.
Source: Velo
ETH/BTC ratio says otherwise
Matter of fact, the massive divergence in ETF flows barely impacted the ETH/BTC ratio, an indicator of the perceived capital rotation between the top crypto assets.
Unlike the previous week’s 28% rally in ETH/BTC, which meant capital rotated from BTC to ETH, the indicator was muted this week.
No wonder most altcoins cooled off, as the ETH/BTC ratio is one of the barometers of the altcoin market segment.
Source: ETH/BTC, TradingView
Spot demand also gaining traction
But there was also genuine demand for spot ETH, especially from treasury firms front-running the expected stablecoin and tokenization booms.
In fact, Ark Invest’s Cathie Wood noted that the recent rush to unstake ETH from validators was partly being driven by demand from ETH treasuries with 2x potential returns.
Source: X
Coinbase analysts also reinforced a similar stance and added,
“We think this (unstaking demand) paints a picture of a market reallocating capital in response to shifting yield opportunities rather than a loss of confidence in ETH or the ecosystem.”
And the shift was plausible. Staking rewards offered only 3% while basis trade had 12% and nearly 2x potential returns on the ETH treasury.
At press time, ETH traded at $3.7K and could attempt another stab at the $4K if the market sentiment remains positive.
