U.S. Institutional Demand for Ethereum Declines as ETFs Stall

The decline in U.S. institutional appetite for Ethereum is being captured by multiple key metrics. According to a new CryptoQuant report, the seven-day average outflow from U.S. spot Bitcoin ETFs reached 281 BTC, marking the weakest reading since April. Similarly, inflows into Ethereum ETFs have nearly stalled since mid-August, underscoring a broader cooling of investor confidence. This institutional hesitation has contributed to market pressure, with the broader crypto market witnessing $832 million in total liquidations, of which $666 million were long positions, according to CoinGlass data.

The declining U.S. demand is further evidenced by the drop in the Coinbase Premium, which has shown a steady descent toward zero for both Bitcoin and Ethereum. CryptoQuant analysts highlighted this trend as a clear sign of reduced domestic buying pressure. Simultaneously, Ethereum’s six-month CME basis dropped to a three-month low of 3%, indicating weaker demand for leveraged exposure. “With the basis nearing zero, institutions are no longer willing to pay a premium for Ethereum exposure, cooling down short-term appreciation expectations,” explained Enmanuel Cardozo, Market Analyst at Brickken.

Analysts point to a confluence of factors driving the institutional pullback from Ethereum. Lacie Zhang, Research Analyst at Bitget Wallet, told Decrypt that “the early wave of Ethereum ETF inflows was driven less by conviction and more by reallocation mechanics — namely the migration from Grayscale’s legacy ETHE product.” The eventual closing of this arbitrage window, coupled with Ethereum’s underperformance relative to Bitcoin and Solana, naturally cooled the ETF inflows, according to Zhang’s analysis.

Beyond Ethereum-specific issues, a broader macroeconomic reassessment is underway. Cardozo noted that “institutional players are now reassessing risk in the face of new conditions, elevated bond yields, and fading speculative appetite, given its ‘complex to value’ narrative compared to Bitcoin.” This risk reassessment comes amid upcoming rate cut expectations, a worsening labor market, and Federal Reserve Chair Jerome Powell’s comments on quantitative tightening, creating an environment where institutions are rotating out of high-beta crypto exposure.

The elevated CME open interest suggests these investors have shifted from “aggressive positioning to risk management mode,” according to Cardozo, indicating that this represents a tactical adjustment rather than a complete exit from the market. The data shows institutions are maintaining exposure while reducing leverage and speculative positioning in response to changing market conditions.

Despite the clear short-term decline in institutional interest, both experts reaffirmed that this behavior does not affect Ethereum’s long-term bullish outlook. “On-chain data doesn’t show broad distribution,” Zhang explained, noting that “liquidity expansions still drive risk, and this phase reflects rotation, not reversal.” This perspective suggests the current pullback represents a market adjustment rather than a fundamental breakdown in Ethereum’s value proposition.

Zhang emphasized that instead of new inflows, Ethereum needs new reasons to hold, such as tangible revenues, cheaper scaling, and a clearer fiscal narrative for Ethereum to serve as productive collateral. “Once those fundamentals align, ETFs will follow again — not lead,” she predicted. This indicates that future institutional interest will be driven by Ethereum’s underlying utility rather than speculative mechanics.

Cardozo echoed this long-term optimism, stating that “if institutions step back temporarily, innovation steps in. The next leg up will likely be driven by real-world utility, tokenized assets, AI-linked infrastructure, and scalable DeFi protocols that generate real-world yield beyond speculation.” This vision positions Ethereum’s future growth as dependent on practical applications and ecosystem development rather than purely financial flows.

Interestingly, retail sentiment appears to contradict the institutional data. Users on Myriad, launched by Decrypt’s parent company Dastan, have placed a 66% chance that Ethereum hits $4,500 before it drops to $3,000. This divergence between institutional metrics and retail prediction markets highlights the complex, multi-layered nature of crypto market sentiment and suggests that different investor cohorts may be interpreting the same market conditions through different lenses.