Source: Cointelegraph, Fortune
Compiled by: Felix, PANews
After years of regulatory obstruction and countless revisions to registration documents, Ethereum spot ETFs have finally entered the market. The Chicago Board Options Exchange (Cboe) recently announced that five Ethereum spot ETFs will be listed on the exchange on July 23, including the Fidelity Ethereum Fund, the Franklin Ethereum ETF, the Invesco Galaxy Ethereum ETF, the VanEck Ethereum ETF, and the 21Shares Core Ethereum ETF.
The other four Ethereum spot ETFs will be traded on Nasdaq or New York Stock Exchange (NYSE) Arca. No official announcement has been made by these exchanges yet, but they are also expected to be listed in the near future.
The highly anticipated listings are a defining moment for the crypto market and an opportunity for millions of U.S. institutional and retail investors. These ETFs follow in the footsteps of 11 Bitcoin spot ETFs, which have accumulated more than $54 billion in assets under management since their launch in January and have surged 47% this year. Here's everything you need to know about Ethereum spot ETFs.
What is an Ethereum Spot ETF?
ETH is the native cryptocurrency of the Ethereum blockchain. Legally speaking, ETH is considered a commodity and the corresponding ETF would be a security, but the US SEC has reservations about this determination.
ETFs first came to market in 1993. These funds bring together a basket of securities, such as several different energy stocks, whose prices are aligned with the index they track. They are listed on an exchange and can be traded during market hours, so they work similarly to stocks.
Spot Ethereum ETFs will track the spot (or current) price of ETH. These products allow investors to gain access to cryptocurrency without having to own a crypto wallet. These ETFs will be set up as a grantor trust, meaning investors will own a share of the ETH held by the trust.
Who issues it and how much does it cost?
Currently, eight asset management companies are planning to launch Ethereum ETFs, and the fee information of nine Ethereum spot ETFs has been fully announced. The details are as follows:
In terms of the underlying mechanisms, these funds are almost identical. Each ETF is sponsored by a reputable institutional party, has a qualified custodian holding spot ETH, and relies on a core team of professional market makers to create and redeem units. These funds have the same investor protection standards, including insurance against broker bankruptcy and cybersecurity risks.
For most investors, the deciding factor is fees. Eight of the nine ETFs have management fees between 0.15% and 0.25%. The only exception is the Grayscale Ethereum Trust (ETHE), which charges a 2.5% management fee.
Most, but not all, Ethereum ETFs have temporarily waived or reduced fees to attract investors, but Greyscale Ethereum Trust and Invesco Galaxy Ethereum ETF (QETH) are the exceptions.
Where can I buy it?
In short: Almost all major broker platforms. Every ETH spot ETF that came to market in the last week of July has received regulatory approval to trade on at least one major U.S. exchange, specifically Nasdaq, New York Stock Exchange (NYSE) Arca or Chicago Board Options Exchange (Cboe) BZX.
Everyday investors do not trade directly on these exchanges. Instead, they rely on brokerage platforms such as Fidelity, E*TRADE, Robinhood, Charles Schwab, and TD Ameritrade as intermediaries.
Once the ETH ETF is listed on a public exchange, it is expected that all reputable brokers and other institutions will be able to trade it.
Will the spot Ethereum ETF provide staking services?
Maybe, but not in the short term.
Staking involves depositing ETH into a validator node on the Ethereum beacon chain. Staked ETH earns a percentage of network fees and other rewards, but it also risks being “slashed” — or having the staked collateral confiscated — if the validator misbehaves or fails.
Staking is attractive because it can significantly increase returns. According to StakingRewards.com, as of July 19, the annualized rate of return was approximately 3.7%.
Earlier this year, several issuers, including Fidelity, BlackRock and Franklin Templeton, sought regulatory approval to add staking capabilities to Ethereum spot ETFs. The SEC rejected those requests.
According to several anonymous people involved in the negotiations, it comes down to liquidity. It usually takes several days for the staked ETH to be withdrawn from the Beacon chain. This is a problem for issuers because they need to redeem ETF shares in a timely manner upon request.
The issuer is still exploring ways to add staking capabilities to existing Ethereum spot ETFs — possibly by maintaining a “buffer” of liquid spot ETH — but a viable plan is at least a few months away, the people said. Currently, ETH ETFs cannot be staked.
Why Buy the Ethereum ETF?
Bitcoin and Ethereum represent units of ownership in the underlying blockchain, and therefore its value, but beyond that, they are very different.
Bitcoin may be a long-term hedge against inflation, while Ethereum is closer to a technology investment. Vetle Lunde, a senior analyst at K33 Research, said in an interview that the main premise of blockchain is "eliminating intermediaries and enabling 24/7 operation of financial services such as trading and lending, as well as tokenization, digital collectibles and digital identity."
While crypto markets are currently closely correlated, this may not always be the case. Therefore, Ethereum spot ETFs enable investors to meet diversified investment needs.
Can its popularity rival that of spot Bitcoin ETFs?
James Seyffart, an ETF analyst at Bloomberg, said that demand for Ethereum spot ETFs will be 20% of that for spot Bitcoin ETFs. This is because ETH's market capitalization is about one-third of BTC. In addition, these ETFs lack a key advantage of holding ETH: investors cannot stake it and, in turn, cannot generate returns. But James Seyffart said that even at a smaller scale, they will be "very successful" by the standards of previous ETF issuances. Similarly, K33 Research predicts that inflows will reach $4 billion in the first six months of trading, accounting for a quarter of the Bitcoin spot ETF.
Leah Wald, CEO and president of Cyberpunk Holdings, said in an interview that the key to judging success is to evaluate its performance six months after trading, rather than just evaluating the performance on the "trading start day" and the first few weeks. She pointed out that these products were launched in the summer, which is a "slow season" for trading. In addition, success should also be judged by trading volume and spreads, not just inflows. Because the health of these indicators indicates the future growth of asset management scale (AUM), healthy indicators will make investors feel safe to allocate funds to these new securities.
Who will invest in them?
Institutional investors, such as hedge funds, pension funds, banks, and endowment funds. Retail investors can also purchase directly or through portfolio allocations from wealth advisors. The latter is likely to dominate the first six months of trading, as data from spot Bitcoin ETFs shows that more than 80% of total AUM comes from non-professional investors.
How Will ETFs Impact the Crypto Market?
If K33's forecast of $4 billion in inflows within six months is accurate, at current prices, it means that by the end of the year, 1% of all ETH in circulation will be held by ETFs. Lunde said this holding is "good for" boosting ETH's price in the second half of the year.
History shows that inflows will also benefit the overall market. According to K33 data, new capital flowing into Bitcoin through ETFs increased the crypto market value by 46% in 2024. Lunde expects that these products "can further expand the overall market." In addition, Bitcoin ETF investors "have proven to be able to take volatility in stride, and even during deep corrections, capital flows are stable," indicating that new investors committed to long-term investment will be interested in ETFs.
Finally, the participation of traditional financial giant BlackRock in the issuance shows that the company is deepening into the crypto field, which brings "solid and much-needed endorsement" to the crypto industry.
Related reading: The US Ethereum spot ETF is about to be listed: should you enter the market first or wait and see?
