If nothing unexpected happens, the Ethereum spot ETF is expected to start trading on July 23 (Tuesday), allowing investors to buy the second largest cryptocurrency by market value in the form of shares. Bitkoala learned that sources revealed that the U.S. Securities and Exchange Commission may approve at least three funds to enter the market on the same day, but it is said that a total of eight Ethereum ETFs will be launched at the same time.
Previously, U.S. regulators have approved 11 spot Bitcoin ETFs, and since their launch in January, their assets under management have accumulated to more than $54 billion, and have soared 47% this year. For those who are not familiar with spot Ethereum ETFs, this article will explain them all at once through seven questions.
1. What is the spot Ethereum ETF?
ETH is the native cryptocurrency of the Ethereum blockchain. Despite the SEC’s reservations, ether is legally considered a commodity, but the corresponding ETF would be a security.
ETFs first came to market in 1993. These funds bring together a basket of securities, such as a handful of different energy stocks, that are priced in line with the index they track and are listed on an exchange and can be traded during market hours, thus functioning like a stock.
Spot Ethereum ETFs will track the spot (or current) price of Ethereum. These products give investors access to the underlying cryptocurrency without having to own a crypto wallet. The ETFs will be set up as a grantor trust, meaning investors will own shares of the Ethereum held by the trust.
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2. Who will issue the spot Ethereum ETF and how much will it cost?
Eight asset managers have proposed offering Ethereum ETFs: BlackRock, Ark Invest/21Shares, VanEck, Grayscale, Fidelity, Bitwise, Franklin Templeton, and Invesco/Galaxy Digital, each with nearly identical investment vehicles and thus competitive fees to investors. Currently, we know that Franklin Templeton will charge 0.19%, VanEck 0.20%, and Invesco and Galaxy Digital will charge 0.25% for their jointly filed ETF.
A full list of fees will be released once the final registration statement, or S-1, is filed with the Securities and Exchange Commission. That will happen on Tuesday if all eight stocks begin trading.
3. Where can I access the spot Ethereum ETF?
The spot Ethereum ETF will be listed on Nasdaq, the Chicago Board Options Exchange (CBOE) and the New York Stock Exchange.
4. Why would someone buy an Ethereum ETF?
Bitcoin and Ethereum represent units of ownership (and therefore value) on the underlying blockchain. Beyond that, they are very different.
While Bitcoin may be a long-term hedge against inflation, Ethereum is closer to a technology investment. Vetle Lunde, senior analyst at K33 Research, believes that the main premise of blockchain is "eliminating intermediaries and enabling 24/7 uptime for financial services such as trading and lending, in addition to tokenization, digital collectibles and digital identity." He added that while the crypto markets are currently closely correlated, this may not always be the case. Therefore, an Ethereum ETF allows investors to diversify which corners of the crypto economy they want to invest in.
5. Will the popularity of the spot Ethereum ETF be comparable to that of the spot Bitcoin ETF?
Bloomberg ETF analyst James Seyffart said that demand for spot Ethereum ETF funds will be 20% of that for spot Bitcoin ETFs. This prediction is because the market value of Ethereum is about one-third of Bitcoin, and he added that ETFs will lack a key benefit of holding Ethereum: investors will not be allowed to stake it, thereby generating returns. But James Seyffart said that even at such a small scale, they are "extremely successful" by any ETF issuance standard. Similarly, some analysts predict that inflows will reach $4 billion in the first six months of trading, accounting for a quarter of the spot Bitcoin ETF.
Leah Wald, CEO and president of Cyberphunk Holdings Inc., believes that when judging the success of a spot Ethereum ETF, the key is to evaluate performance six months after trading, rather than just on "match day" and the first few weeks. She noted that these products are listed in the summer and trading is usually "relatively flat." In addition, she added that success should also be judged based on trading volume and spreads, not just inflows, because the health of these indicators predicts future AUM growth as investors feel comfortable putting money into these new securities.
6. Who will invest in the spot Ethereum ETF?
Institutional investors, such as hedge funds, pension funds, banks, and endowments. Retail investors can also access these assets through direct purchases or portfolio allocations through wealth advisors. The latter is likely to dominate trading in the first six months, as the first quarter 13F of the spot Bitcoin ETF shows that more than 80% of the total AUM comes from non-professional investors.
7. How will the spot Ethereum ETF affect the cryptocurrency market?
If K33's prediction of $4 billion flowing into the Ethereum ETF within six months is accurate, then at current prices, this means that by the end of this year, 1% of all Ether in circulation will be absorbed by the ETF, which will undoubtedly "help" strengthen the price of Ether in the second half of the year.
History suggests these inflows will also be good for the broader market. According to K33, new capital flowing into Bitcoin through ETFs boosts the cryptocurrency’s market cap by 46% in 2024. Vetle Lunde, senior analyst at K33 Research, expects these products “are likely to further amplify broad market strength” because they enable OTC capital to enter the market. In addition, Bitcoin ETF investors “have proven to ride volatility gracefully, and flows have been steady even during deep corrections,” suggesting that ETFs could open up the market to new investors committed to long-term investing.
