Conversation with Bloomberg Analysts: Cryptocurrency ETF Opportunities and Market Response

In the same week, 9 Ethereum ETFs were approved simultaneously.

What do all these SEC-approved Ethereum ETFs mean for cryptocurrencies? Could a Bitcoin ETF be next?

In this episode of the Bankless Podcast, hosts Dacid and Ryan talk with Bloomberg Intelligence analyst Eric Balchunas about the recent debut of multiple Ethereum futures ETFs (exchange-traded funds) in the United States and their impact on the cryptocurrency market.

Host : Dacid & Ryan, Bankless

Speaker : Eric Balchunas, Bloomberg Intelligence analyst

Podcast : Bankless Podcast

Original title : "Ethereum ETFs: Everything You Need To Know"

Program: link

Broadcast date : October 10

Why is 'ETF Week' unprecedented?

• Throughout the history of ETFs, the SEC has generally allowed them to be listed in the order in which ETFs were filed. But during this special ETF week, the SEC broke with this tradition and allowed multiple Ethereum futures ETFs to be launched simultaneously. During the week, nine Ethereum futures ETFs were launched on the same day, which is unprecedented .
• This new SEC strategy is considered a correction to the previous launch of a Bitcoin futures ETF. In the previous launch of Bitcoin Futures ETF, ProShares Bitcoin Futures ETF attracted most of the funds and trading volume due to its first-mover advantage. To prevent this from happening again, the SEC allowed multiple Ethereum futures ETFs to be launched simultaneously.

TechFlow Note : ProShares is a financial services company that offers a variety of exchange-traded funds (ETFs) that focus on specific strategies. ProShares offers a range of innovative ETFs to help investors achieve their investment goals.

• While the launch of these Ethereum futures ETFs is unprecedented, their trading volumes have been surprisingly low . Various ETFs are trying to attract investors through different marketing strategies. This unprecedented ETF week is seen as a prelude to the launch of spot Bitcoin ETFs. The market and analysts are closely watching the performance of these Ethereum futures ETFs to predict the market reaction and potential impact of future spot Bitcoin ETFs.

The Importance of Ethereum Futures ETFs

• Eric emphasized that the launch of Ethereum futures ETFs is a milestone event. They act as a bridge between crypto protocols and the traditional financial (TraFi) world. These ETFs allow investors in traditional financial markets to invest in cryptocurrencies in a way that is familiar and comfortable to them. , especially Ethereum.
• These ETFs operate within a regulatory framework, which brings confidence to investors who are wary of investing in cryptocurrencies. They can invest in cryptocurrencies indirectly by purchasing ETFs without directly holding or managing cryptocurrencies. Not only does this increase the visibility and acceptability of cryptocurrencies, it also helps attract more mainstream capital to the market.
• While investors in traditional financial markets can enjoy the convenience of cryptocurrency investment through ETFs, Eric pointed out that all value will eventually flow into the crypto world. Eric emphasized that these ETFs are the “largest pipeline” connecting multi-trillion-dollar capital and the market capitalization of cryptocurrencies. The opening of this “pipeline” is regarded as good news for the cryptocurrency market. This huge capital flow will greatly promote cryptocurrencies. Market growth and development.

Futures ETFs vs Spot ETFs

Futures ETFs

advantage

• Liquidity: Futures ETFs can better track the prices of their underlying assets in daily transactions, providing investors with a convenient investment channel.
• Access: Futures ETFs provide a way into the cryptocurrency market for traditional investors, especially those who do not want to hold cryptocurrencies directly.

shortcoming

• Rolling costs: Futures ETFs need to "roll" their contracts periodically, which can result in additional costs and efficiency losses. For example, if an investor expects Ethereum to rise 20%, the return on investment through a futures ETF may only be around 18% due to the impact of rolling costs.
• Gradually replaced: Eric predicts that once spot Bitcoin and Ethereum ETFs are launched, futures ETFs may gradually be marginalized or disappear.

Spot ETFs

advantage

• No rolling costs: Compared to futures ETFs, spot ETFs do not require rolling contracts, so there is no associated cost and efficiency loss.
• More direct market exposure: Spot ETFs provide investors with more direct exposure to cryptocurrencies and may become the first choice for mainstream investors.
• Can be held for the long term: For long-term investors, spot ETFs may be a better choice because they more accurately reflect the value of the underlying assets.

shortcoming

• Not launched yet: Spot Bitcoin and Ethereum ETFs have not been launched yet, so their actual performance and market acceptance remains to be seen.

Importance of Ethereum ETF & Is ETH a security?

• The ETH ETF provides an unbiased trading opportunity, allowing investors to invest based on their predictions rather than being influenced by other variables. Compared with products such as GBTC, ETH ETF does not have a huge premium or discount, providing a fairer investment opportunity.
• An important feature of ETFs is that they allow for arbitrage, where shares can be created and redeemed. This feature ensures that the price of the ETF remains consistent with the value of its underlying asset.
• Futures ETFs have the issue of rolling costs, which is an additional variable that can impact investor returns. Futures ETFs are considered "red light" ETFs, which carry additional risks and costs; spot ETFs are considered safer and unbiased investment vehicles because they directly track the value of the underlying asset, without the issue of rolling costs.
• ETH is the native cryptocurrency of the Ethereum network. Not only is ETH a store of value, it is also used to pay transaction fees and execute smart contracts. In the United States, securities laws have clear definitions of what assets are considered securities. If ETH were considered a security, it would be subject to stricter regulatory and compliance requirements. Due to the novelty and complexity of cryptocurrencies, integrating them into traditional legal and regulatory frameworks is challenging.
• The question of whether ETH is a security remains an open question that requires further discussion and decision-making by regulators, legal experts, the cryptocurrency community, and other stakeholders.
• The launch of the ETH ETF is an important step towards maturity and mainstream acceptance of the cryptocurrency market. These products may attract more traditional investors to the cryptocurrency market, especially those who invest through financial advisors.
• Eric predicts that spot Bitcoin and Ethereum ETFs will be approved in the future, which will be an important milestone for the cryptocurrency market. The launch of spot ETFs will further promote the mainstream acceptance and market maturity of cryptocurrencies.

The impact and significance of Ethereum ETF

• Financial advisors account for approximately 70-75% of all ETF investors, while institutional investors and retail investors account for 10% and 15% respectively. Financial advisors in the United States manage approximately $30 trillion in assets. This is a huge market, and ETFs provide these advisors with a familiar and convenient investment vehicle.
• As people's wealth grows, they are more likely to seek help from financial advisors to manage their assets, engage in estate planning, and find tax reduction strategies. The launch of the ETH ETF opens the door to this $30 trillion market, providing a larger pool of potential investments in the cryptocurrency.
• As more financial products, such as ETH ETFs, enter the market, cryptocurrencies are likely to gain wider acceptance, especially among traditional financial advisors and their clients. While ETH ETFs may not see an immediate spike in short-term trading volume, over the long term, these products may attract more capital into the cryptocurrency market.

The appeal of Ethereum ETFs to different investors

• Eric said that he will maintain 75% confidence that the Bitcoin spot ETF will be approved in 2023. He believes that the SEC’s cooperation with issuers demonstrates its willingness and openness. The market reaction to this possibility is likely to be very positive, as spot ETFs are seen as a more direct and unbiased investment vehicle.
• Institutional investors like highly liquid ETFs because they can be easily moved in and out without affecting the market. ETF trading is anonymous, not bound by contracts, and very flexible. In times of crisis, institutional investors know they can easily exit ETFs.
• Retail investors may be more inclined to trade products with higher volatility, such as a 2x leveraged Bitcoin ETF. They like to take risks and pursue higher returns. Financial advisors may be tempted to choose more stable, long-term and low-cost ETFs offered by large institutions such as Black Rock.
• Even conservative investors may have a small portion of their money invested in risky investments in search of higher returns. Cryptocurrency ETFs have high product-market fit with retail investors and are expected to attract a large number of retail investors.