Billionaire decides to sell this popular cryptocurrency

Good news for Ethereum (Ethereum 1.65%) Investors know that the world's second most popular cryptocurrency is still up just 6% for the year. The bad news, however, is that Ethereum's price has fallen by nearly 25% in the past three months. Additionally, Ethereum’s performance has decreased significantly Bitcoin (Cryptocurrency: BTC)an increase of 50% over the year.

As a result, billionaire fund managers appear to be selling off their Ethereum positions, indicating that a recovery may not happen soon. So if a billionaire decides to sell this popular cryptocurrency, should you too?

Spot Ethereum ETF

The key catalyst for Ethereum was supposed to be the launch of the new Spot Ethereum ETF at the end of July. Just as the launch of a new Bitcoin ETF in January led to a spike in Bitcoin prices at the beginning of the year, a new Ethereum ETF was supposed to lead to a spike in Ethereum prices during the final months of the year.

In fact, some analysts thought up to $4.8 billion could flow into these ETFs by the end of the year. However, this type of influx has not actually materialized. For example, two of the largest new spot Ethereum ETFs are iShares Ethereum Trust (ETHA 4.19%) and Fidelity Ethereum Fund (FETH 4.10%) — New inflows totaled just $1.5 billion.

This is far from the pace needed to reach the goal with just over two months left until the end of the year. It's too early to say the new Spot Ethereum ETF has disappointed, but it seems to be becoming the consensus.

Investors flee Ethereum

The Spot Ethereum ETF is still too new to have a complete list of financial institutions buying it, but preliminary 13F data from the SEC is starting to trickle in. And there don't seem to be many solid purchases by billionaire fund managers. Of the approximately 25 financial institutions that reported new ETF purchases as of Oct. 4, only two made purchases of $1 million or more.

Image source: Getty Images.

In fact, the big story over the past two months has been the extent of investor outflows from the new Spot Ethereum ETF. That was understandable in August, when the cryptocurrency market experienced a “flash crash” that sent investors into a panic. However, no leakage should be seen even in October.

But that's exactly what seems to be happening. For example, on October 1, the Fidelity Ethereum Fund saw outflows of nearly $25 million, the highest single-day total ever. Some crypto traders have even suggested that Ethereum could fall by 10-15% if these investor outflows do not stop.

And if you look at the numbers from CoinShares, which tracks institutional purchases of various cryptocurrencies, the picture appears to be about the same. CoinShares publishes a weekly digital asset report that shows inflows and outflows to popular cryptocurrencies based on the holdings of large institutional investors. And there have been net outflows to Ethereum in six of the past seven weeks. For example, in one week in September, nearly $100 million was drained from Ethereum.

Why do billionaires sell things?

So why did these billionaire investors decide to sell Ethereum? The simplest answer is that these investors simply see the same upside potential in Ethereum that they see in Bitcoin. That means no.

Another answer may be that these investors don't see the same diversification benefits as Ethereum. If I hold Bitcoin in my portfolio, do I really need to hold Ethereum to gain exposure to that crypto asset class?

Additionally, Bitcoin is considered a potential “risk-off” asset, offering investors a potential hedge against inflation and economic downturns. In contrast, Ethereum is primarily considered a “risk-on” asset. As long as investors have serious concerns about the future direction of the US economy, it may be difficult for Ethereum to gain traction.

Should I buy Ethereum?

If smart money is deciding to sell Ethereum, they clearly need to be careful, especially given that investor inflows into other cryptocurrencies appear to be picking up. Bitcoin inflows also appear to be on a recovery trend. Solana (Code: SOL)Ethereum's main competitor.

At the end of the day, it comes down to whether you want to buy for the short term or the long term. If your investment horizon is 12 months or less, it probably makes sense to put the brakes on Ethereum. But even if it is much longer, there is still a case to buy Ethereum, a best-in-class cryptocurrency with a stellar track record of delivering huge profits to investors.