The initial week of February witnessed a notable performance in U.S. Spot Ethereum ETFs, surpassing their Bitcoin ETF counterparts in terms of inflows. Data from SoSo Value and Farside Investors revealed that ETH ETFs attracted $420 million in inflows, while BTC ETFs received $173 million.
An analysis of the situation indicates that significant players took advantage of the reduced prices during the ETH de-leveraging event observed earlier that week.
In contrast, Coinbase analysts, headed by David Han and David Duong, explained that the dominance in ETH ETF inflows stemmed from institutional players showing interest in the ETH ‘basis trade.’
Ethereum Basis Trade on CME
The CME ETH basis trade involves a strategic move where institutional investors purchase ETH in the Spot market and simultaneously short it in the Futures market to profit from the price difference or yield. This practice is common for both ETH and BTC.
However, Han and Duong pointed out that the CME ETH basis trade exhibited a higher yield than BTC during that week. This occurrence hinted that a majority of significant players entered the ETH market by investing in Spot ETH ETFs and shorting CME Futures contracts. They remarked,
“Notably, the CME ETH basis trade has consistently yielded higher annualized returns compared to the CME BTC basis trade in recent times. This discrepancy in yield could explain the substantial inflows seen in Spot ETH ETFs recently.”
As illustrated in the provided chart, the CME ETH yield peaked at 16%, while the CME BTC basis remained around 10%. In simple terms, trading ETH presented greater risk-reward prospects than BTC over the past seven trading days.
Further supporting this observation was the increased inflow into ETH Futures compared to BTC since the U.S. elections in November 2024. The analysts highlighted that ETH Futures’ Open Interest rates surged from 354K ETH to 1.13M ETH by early February 2025.
In contrast, inflows into CME BTC Futures remained stagnant during the same period. Han and Duong elaborated,
“The growth in CME BTC futures has not demonstrated a comparable rise, with open interest remaining relatively unchanged (173K BTC on November 1, 2024, to 169K BTC on February 6, 2025).”
Nevertheless, the analysts cautioned that ETH’s price might experience a temporary downturn due to negative funding rates and robust competition from Solana.