Bitcoin ETFs may have achieved inflows of $2.3 billion in January 2026, but Ethereum ETFs continue to struggle. A combination of net outflows and low levels of investor interest is puzzling, given that ETH is second only to BTC in terms of market cap and remains a backbone of digital finance.
Ethereum’s ETF struggles have become a key reason why institutional investors continue to favor BTC and avoid ETH, and getting to the bottom of this issue is essential learning for anyone interested in the space. Keep reading for a deep dive that will guide you through everything you need to know.
The Numbers Aren’t Adding Up For Ethereum ETFs
BlackRock’s iShares Bitcoin Trust (IBIT) has gained $50+ billion in assets, and Fidelity’s FBTC another $15+ billion. Collectively, Bitcoin ETFs hold over $100 billion, but Ethereum ETF performance fails to match anything like this performance despite launching just six months later.
Total assets in Ethereum ETFs are thought to be as little as $10-12 billion, with persistent net outflows, such as Grayscale’s ETHE, and fees that are as much as 10 times higher, painting a bleak picture. The majority of days in recent weeks have been net negatives or trending flat, with few signs of growth thought to be coming in the near future.
Analysts have repeatedly highlighted the fact that the flow differential between BTC and ETH ETFs has widened over the past 12 months, despite the tech upgrades for ETH. Institutional investors clearly view Bitcoin and Ethereum in very different ways, irrespective of how popular ETH continues to be with private users.
Why Do Institutional Investors Prefer Bitcoin?
Bitcoin’s advantage lies in its simplicity and scarcity, with the 21 million cap, and the inflation hedge that derives from it, mirroring the financial dynamics of gold that traders are well versed in. By contrast, ETH is viewed as more complex, built on smart contract infrastructure, and still growing and evolving through a series of upgrades. The use as a currency, the generation of yields through staking, and gas associated with transactions make the valuation of ETH by institutional investors more complicated. The result is that the more conservative majority of institutions have chosen to stay away to date.
Bitcoin also has the advantage of being classified as a commodity by the CFTC, and the SEC hasn’t disputed this. By contrast, ETH is yet to be legally declared a security or a commodity, creating an unwanted regulatory gray area. Whereas BTC can be bought and held while the price is tracked, the complications caused by some ETFs staking ETH to enhance their yield raise additional securities law issues that are yet to be resolved. In many ways, BTC feels much simpler and more familiar to institutions.
The Ongoing ETH/BTC Problem
Ethereum underperformance is well-documented and is clearly apparent with the drop in the ETH/BTC ratio since 2021. The decline has seen it fall from a peak of 0.087 to the 0.03-0.04 range that it currently sits within. The fact that Bitcoin has consistently and strongly outperformed Ethereum on a relative basis is something institutions have been closely monitoring for some time. A smart money shift from ETH to BTC is mirrored in negative ETF flows, with the far higher exposure of Bitcoin proving increasingly attractive. Unless the trend begins to reverse, it becomes virtually impossible to make a bullish case for ETFs in the near future.
ETH Challenges Beyond ETF Flows
The issues also go far deeper, namely in the form of gas fees that continue to cause issues despite significant cost-reduction upgrades. Transactions on the Ethereum mainnet continue to be expensive during periods of high congestion (anywhere from $10-50+ per transaction is now common), and retail adoption is lagging as shifts to Layer 2 solutions begin to take place.
There is also a distinctive Layer 2 paradox whereby Layer 2 solves Ethereum’s scaling problems but simultaneously creates an issue around value capture. Layer 2 tokens can, of course, increase in value, creating gains independently of ETH. Investors are then left questioning whether ETH actually faces disruption and competition from its own ecosystem.
Market share appears to be falling, with the likes of Solana offering quicker transactions and lower fees, and Avalanche, Cosmos, and others competing for developer attention. Yes, there are examples, such as studies of popular crypto casino recommendations, that highlight how ETH adoption is increasing in certain use cases, but the overall trend is against ETH at present.
Ethereum’s transition to Proof-of-Stake enabled staking (currently producing a 3-4% annual yield) is seen as overly complex by many, with critics highlighting how it appears to be becoming some form of bond in many respects. If you then add in the complexity of the EIP-1559 burning mechanism, which is widely accepted to have made ETH deflationary, and the sharp drop in issuance, you have a marketing narrative that failed to reach beyond crypto diehards.
How Can Ethereum ETFs Compete In 2026?
It will be a key moment if the next SEC chair explicitly states that Ethereum is a commodity and moves it out of its current regulatory gray area. While by no means a guarantee of success, this will at least provide some food for thought for the regulatory and compliance departments at a number of institutional investors. Others will be pinning their hopes on a dramatic Bitcoin decline and an ensuing exodus, but there are no signs that if this does happen, it will necessarily benefit ETH.
An alternative path to progress would be more attractive staking yields (doubling to 6-8% would move the needle) that could catch the attention of institutional fixed-income allocators. By making ETFs a new alternative to bonds, this would provide an interesting use case and potential driver. That said, the regulatory and compliance uncertainty discussed above would also need to be addressed. Investors will also need to be convinced that Layer 2 growth directly benefits ETH, making it a more attractive investment proposition.
The crux of the matter is that, while Bitcoin has a clear value proposition, ETH needs changes that are currently beyond its control. It is also no longer simply a choice between BTC and ETH, with new entrants becoming increasingly competitive in terms of how they are vying for institutional attention.
Investment Implications: ETH ETFs vs BTC ETFs
Those with a more conservative outlook are sure to remain with Bitcoin ETFs due to the much clearer regulatory path, the simplicity of the value proposition, and the strength of the inflows. The net outflows experienced by ETH ETFs point to a potential liquidity issue in the future when assessed by institutional allocators who will be comparing the opportunity to traditional securities.
More aggressive investors are likely to pivot more to ETH as they bet on the technical innovation paying off in the medium to long term. The manner in which this should be done is a hot topic right now, and many believe that a direct ETH holding is the most effective strategy. For those looking for a hybrid approach, it’s important to note that the majority of hybrid analysts still weigh heavily towards BTC, with holdings of at least 4:1 being the norm.
Ethereum’s ETF Underperformance Is More Than A Teething Problem
The Ethereum ETF struggles we’ve outlined are more than initial problems that are quickly straightened out after a launch. They point towards a combination of distrust and disinterest in ETH on the part of institutional investors, in large part because the nature of the value offer is simply not as clear as it is with BTC. The innovation and technical power that was once seen as ETH’s key differentiator is now what stands in its way as it looks to move into institutional spaces.
