Crypto Investment Products Suffer Ethereum Merge Jitters, Prompting Outflow

Source: Adobe/Dennis

The upcoming Ethereum merge has created uncertainty among institutional investors and despite an uptick in the price of Ether (ETH), the asset has been the primary focus of outflows in terms of digital asset funds. 

The data was first highlighted by Coinshares' Digital Asset Fund Flows Weekly Report. Per the report, crypto investment products saw outflows totaling $63 million in the last week.

"Digital asset investment products saw outflows totaling US$63m… Ethereum was the primary focus of the outflows, totaling US$62m last week, this comes despite the improved certainty of the Merge," the report said. 

It adds that the week's performance, while relatively small in size in comparison to other weeks' movements, makes the fifth consecutive week in which crypto funds have seen outflows. It also notes that the outflow "perhaps highlights a concern amongst investors that the event might not go as planned." 

According to the regional breakdown of the outflows, Canada and the U.S. were the largest contributors totaling $60 million and $10 million respectively in the last five weeks. Similar to ETH, Ethereum's native token, Bitcoin (BTC) funds have also been on a five-week-long streak of outflows.

Uncertainty in the ETH market beyond institutional investors

The ETH market has been experiencing the "merge Jitters" beyond just outflows from crypto funds. According to analysis from crypto data firm Kaiko, reported by Bloomberg, more traders are shorting ETH in the derivatives market as the merge gets closer. 

This has resulted in the funding rate of ETH dipping to its most negative since July 2021 and diverging sharply from that of Bitcoin. The trend has been attributed to several reasons, including that traders could be hedging their long positions, or expecting the price of ETH to drop post-merge as a "sell the news" dip kicks in. 

Regardless, analysts have expressed optimism in the merge going smoothly and ushering in a new era for the value proposition of ETH. ETC Group, a London-based specialist provider of crypto-backed securities, said in a recent report that it expects ETH to decouple from the digital assets market in the long term after the upgrade. 

ETC Group supports this optimism with the fact that in August, ETH futures volume surpassed that of Bitcoin for the first time in the history of the crypto market. This also coincided with ETH futures volumes surpassing $1 trillion for only the second time in history.