The good news for Ethereum (CRYPTO: ETH) investors is that the world's second-most-popular cryptocurrency is still up a modest 6% for the year. The bad news, though, is that the price of Ethereum is down nearly 25% over the past three months. Moreover, Ethereum is significantly underperforming Bitcoin (CRYPTO: BTC), which is up 50% for the year.

As a result, billionaire fund managers appear to be selling off their positions in Ethereum, signaling that a recovery may not be happening anytime soon. So if billionaires are deciding to sell this popular cryptocurrency, should you?

The spot Ethereum ETFs

The key catalyst for Ethereum was supposed to be the launch of the new spot Ethereum ETFs at the end of July. Just as the launch of the new Bitcoin ETFs in January led to a surge in the price of Bitcoin at the beginning of the year, the new Ethereum ETFs were supposed to lead to a surge in the price of Ethereum over the final months of the year.

In fact, some analysts thought that as much as $4.8 billion could flow into these ETFs by the end of the year. But these types of inflows simply have not materialized. For example, the two largest of the new spot Ethereum ETFs -- the iShares Ethereum Trust (NASDAQ: ETHA) and the Fidelity Ethereum Fund (NYSEMKT: FETH) -- have collectively brought in just $1.5 billion in new money.

That's well off the pace required to hit the target goal, with just over two months to go until the end of the year. While it's too early to say that the new spot Ethereum ETFs have been a disappointment, that seems to be the growing consensus.

Investor outflows out of Ethereum

The spot Ethereum ETFs are still too new for there to be a complete list of institutions buying them, but some preliminary 13F data from the SEC is starting to trickle in. And there just doesn't seem to be a lot of robust buying from billionaire fund managers. Of the nearly 25 institutions that have reported buying the new ETFs as of Oct. 4, only two have made purchases of $1 million or more.

In fact, the big story over the past two months has been the extent of investor outflows from the new spot Ethereum ETFs. That made sense in August, when the crypto market experienced a "flash crash" and investors panicked. But we shouldn't still be seeing outflows in October.

But that's exactly what appears to be happening. On Oct. 1, for example, the Fidelity Ethereum Fund saw nearly $25 million in outflows, its highest daily total ever. Some crypto traders have even suggested that Ethereum might fall 10%-15% lower if these investor outflows don't stop.

And if you look at numbers from CoinShares, which tracks institutional buying of different cryptocurrencies, the picture appears to be much the same. Every week, CoinShares puts out a digital assets report, showing flows into and out of popular cryptocurrencies, based on the holdings of large institutional investors. And in six of the past seven weeks, there have been net outflows for Ethereum. During one week in September, for example, nearly $100 million flowed out of Ethereum.

Why are billionaires selling?

So why are billionaire investors deciding to sell Ethereum? The easiest answer is that these investors simply don't see the same upside potential with Ethereum that they see with Bitcoin.

Another answer could be that these investors do not see the same diversification benefits with Ethereum. Once you hold Bitcoin in your portfolio, do you really need to hold Ethereum to get exposure to the crypto asset class?

Moreover, Bitcoin is seen as a potential "risk off" asset, giving investors a potential hedge against inflation and economic downturn. In contrast, Ethereum is seen as primarily a "risk on" asset. As long as investors have serious concerns about the future direction of the U.S. economy, Ethereum may have a hard time gaining any traction.

Should you buy Ethereum?

If the smart money is deciding to sell Ethereum, you should obviously take notice, especially given that investor inflows into other cryptocurrencies appear to be recovering. Bitcoin inflows seem to be on the mend, as are those of Solana (CRYPTO: SOL), the leading Ethereum competitor.

At the end of the day, it comes down to whether you are buying for the short term or the long term. If your investment horizon is 12 months or less, it probably makes sense to pump the brakes on Ethereum. But if it's much longer, there's still a case to be made for buying Ethereum, which remains a best-in-class cryptocurrency with a stellar track record of delivering massive returns to investors.

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Dominic Basulto has positions in Bitcoin, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.

Billionaires Are Deciding to Sell This Popular Cryptocurrency was originally published by The Motley Fool