Ethereum (ETH) exchange-traded funds (ETFs) have struggled since their launch in July 2024, recording net outflows of $610 million, while Bitcoin ETFs faced net outflows of $330 million over the same period.
The world's second-largest cryptocurrency has consistently underperformed Bitcoin since these launches, and its share of the global cryptocurrency market capitalization has steadily declined.
Meanwhile, Ethereum Layer 1 activity remains subdued, although Layer 2 usage has increased significantly. According to Citi analysts, this trend may change in the wake of the Federal Open Market Committee's (FOMC) risk-friendly stance in September.
“If the broad market risk environment continues, cryptocurrencies and ETH could gain support and potentially reverse net ETF outflows,” Citi analysts said in a note, although this would require enhanced activity on the Ethereum network.
The dovish FOMC decision appears to have halted ETH’s decline relative to BTC, as the ratio has declined slightly since the meeting. Still, the challenge remains significant: only around 30% of trading days have seen net positive inflows into ETH spot funds.
Citi notes that for Ethereum’s market share to recover significantly, Layer 1 activity would need to pick up.
“While Layer 2 network activity has been strong (especially on Base), active addresses on L1 have been moderate, which could perhaps explain some of the coin’s underperformance in recent weeks,” the analysts noted.
While Ethereum has seen outflows, Bitcoin ETFs, by contrast, continue to attract attention, with net inflows totaling $17.2 billion since launch.
Bitcoin’s first-mover advantage, combined with its status as “digital gold,” has helped it overtake ETH in terms of both inflows and market dominance. In fact, BTC’s share of the global cryptocurrency market cap has been steadily increasing since January 2024.
In recent weeks, the correlation between cryptocurrencies and US stocks has increased, driven by macroeconomic factors such as jobs data and the Federal Reserve’s policy trajectory. Citi notes that this link is expected to remain strong as markets gain clarity on the economic outlook and potential regulatory changes, especially with the upcoming US presidential election.
Stocks have become the main macroeconomic driver for cryptocurrencies. It is worth noting that the correlation between cryptocurrencies and the US dollar turned positive on August 5, which is rare in recent years.
On the other hand, while fears of a currency devaluation, which could boost both cryptocurrencies and gold, are not prominent at this stage, Citi analysts continue to monitor any signs of their resurgence.
