The performance of the spot Ethereum exchange-traded fund (ETF) is simply shocking. You see, the spot Bitcoin ETF has attracted nearly $19 billion in 10 months, but the Ethereum ETF was deserted when it went online in July. What's worse is that Grayscale's ETHE, which was previously an Ethereum trust, was heavily redeemed before it was transformed into an ETF, and other similar funds could not save the situation. As a result, the net outflow of the Ethereum ETF since its launch has reached $556 million, and this week alone, the net outflow was $8 million, which is really terrible.

Why is the Ethereum ETF so weak? There may be several reasons.

Let’s first talk about the background of the capital inflow. Compared with Bitcoin ETF, Ethereum ETF is nothing. Bitcoin ETF is a record-breaking existence, and it is not an exaggeration to say that it is the most successful ETF in history. For example, the ETFs issued by BlackRock and Fidelity, IBIT and FBTC, raised 4.2 billion and 3.5 billion US dollars respectively in the first 30 days of listing. This is more than another fund under BlackRock, Climate Conscious, which only raised 2.2 billion US dollars in the first month.

However, Nate Geraci, president of The ETF Store, said that although Ethereum ETFs did not become popular, three funds still made it into the top 25 ETFs this year. BlackRock's ETHE, Fidelity's FBTC, and Bitwise's ETHW attracted nearly $1 billion, $367 million, and $239 million in assets, respectively, which is not bad for a fund that was established only two and a half months ago.

But Geraci also admitted that the spot Ethereum ETF will never catch up with the spot Bitcoin ETF. If you look at the underlying spot market, Ethereum's market value is only about a quarter of Bitcoin, which probably reflects the long-term demand for the spot Ethereum ETF relative to the spot Bitcoin ETF. The problem is that Grayscale's ETHE has a large outflow, which has overshadowed the performance of other funds. ETHE was established as a trust in 2017. From the beginning, it was designed not to allow investors to redeem ETF shares, and the funds were trapped in it. It was not until July 23 that Grayscale was approved to convert the trust into a formal ETF, which was considered a relief. But even so, ETHE still suffered nearly $3 billion in capital outflows, which was really terrible.

It is worth mentioning that Grayscale's Bitcoin ETF, GBTC, has also encountered the same situation, having processed more than $20 billion in outflows since its conversion in January. However, the performance of BlackRock and Fidelity's spot Bitcoin ETFs is so strong that it can be regarded as compensating for GBTC's losses.

Let’s talk about the issue of staking income. One big difference between Bitcoin and Ethereum is that investors can stake Ethereum to earn income, but Ethereum ETFs do not allow investors to do so now. Therefore, holding Ethereum through ETFs means missing out on this part of the income (currently about 3.5%), and having to pay a management fee of 0.15% to 2.5% to the issuer.

Although some traditional investors do not care about this little bit of return and think that ETFs are convenient and safe, for those native cryptocurrency investors, finding other ways to hold Ethereum is the right way.

Adam Morgan McCarthy, an analyst at crypto data company Kaiko Research, said: "If you are a competent fund manager, have a basic understanding of the crypto market, and are managing someone's funds, why would you buy an Ethereum ETF now? You can pay for ETH exposure, or buy the underlying asset yourself and pledge it to the same provider to earn income."

Another dilemma facing an Ethereum ETF is marketing. Some investors may have difficulty understanding Ethereum’s core use case as it seeks to take the lead in many different areas of cryptocurrency.

There is a hard cap on the number of bitcoins ever created: There will never be more than 21 million. This makes it easy for investors to view it as "digital gold" and a hedge against inflation. But explaining why a decentralized, open-source smart contract platform is important — and more importantly, why the value of ETH will continue to increase — is another matter.

“One of the challenges facing an Ethereum ETF in breaking into the 60/40 baby boomer world is distilling its purpose/value into something easily digestible,” Eric Balchunas, ETF analyst at Bloomberg Intelligence, wrote in May.

McCarthy agreed, saying: “The concept of ETH is more complex than other cryptocurrencies and is not suitable for a simple explanation in one sentence.”

So, there is nothing that can be done about it, as the crypto index fund Bitwise recently launched an educational advertising campaign that emphasizes Ethereum’s technological advantages.

Zach Pandl, head of research at Grayscale, also said: “As investors learn more about stablecoins, decentralized finance, tokenization, prediction markets, and the many other applications powered by Ethereum, they will enthusiastically embrace both technologies and Ethereum ETPs listed in the United States.”

ETH itself has not performed well compared to BTC this year. The second-largest cryptocurrency by market value has only risen 4% since January 1, while BTC has risen 42% and is still hovering near its 2021 all-time high.

Brian Rudick, head of research at cryptocurrency trading firm GSR, said: "One of the factors for the success of Bitcoin ETFs is investors' adventurous spirit and fear of missing out.