Citi Predicts Modest Inflows for U.S. Spot Ether ETFs Amidst Market Dynamics

Spot ether (ETH) exchange-traded funds (ETFs) in the U.S. are expected to experience net inflows at approximately 30%-35% of the levels seen by spot bitcoin (BTC) ETFs, according to a recent Citi (C) research report. This translates to a range of $4.7 billion to $5.4 billion in net inflows over six months. However, the bank cautioned that the actual inflows and the beta of ether returns relative to these flows might be lower than their analysis suggests. 

While ETH offers long-term diversification benefits due to its broader set of use-cases, this advantage is not currently evident. Despite the imminent availability of spot ether ETFs for trading in the U.S., approved by the Securities and Exchange Commission (SEC), investors might perceive bitcoin and ether as similar enough to split their investments between the two, rather than treating them as distinct assets. This perception could lead to ether attracting funds initially earmarked for bitcoin ETFs instead of drawing additional allocations.

Citi also highlighted that another potential factor for lower-than expected inflows is the absence of staking features in ether spot ETFs. Bitcoin's first-mover advantage has also contributed to its strong inflows and performance, benefiting from early investor interest prior to the approval of ether ETFs.

However, there is a silver lining. The launch of spot ether ETFs might coincide with a more accommodative Federal Reserve, which could result in lower interest rates, a stronger equity market, and a weaker U.S. dollar. This macroeconomic environment could be favorable for cryptocurrencies, potentially supporting ether's performance despite the initial lower inflows.