After years of regulatory pushback and countless revisions to registration documents, an Ethereum spot ETF is finally entering 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 Fidelity Ethereum Fund, Franklin Ethereum ETF, Invesco Galaxy Ethereum ETF, and VanEck Ethereum ETF. and 21Shares Core Ethereum ETF.
The other four Ethereum spot ETFs will trade on Nasdaq or New York Stock Exchange (NYSE) Arca. At present, these exchanges have not made official announcements, but they are expected to be listed in the near future.
The highly anticipated listing is 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. Since the Bitcoin Spot ETF launched in January, Bitcoin has accumulated more than $5.4 billion in assets under management and has soared 47% this year. Here’s everything you need to know about the Ethereum spot ETF.
What is an Ethereum Spot ETF?
Ethereum is the native cryptocurrency of the Ethereum blockchain. Legally, Ethereum is considered a commodity and the corresponding ETF would be a security, but the SEC has reservations about this designation.
ETFs first entered the market in 1993. These funds bring together a basket of securities, such as several different energy stocks, whose prices align with the index they track. They are listed on exchanges and can be traded during market hours, so they operate similarly to stocks.
The Spot Ethereum ETF will track the spot (or current) price of Ethereum. These products allow investors to acquire cryptocurrencies without having to own a crypto wallet. These Ethereum coins will be established in the form of a grantor trust, which means that investors will own the market share of the Ethereum coins held by the trust.
Who issues it and how much does it cost?
There are currently eight asset management companies planning to launch Ethereum ETFs, and fee information for 9 Ethereum spot ETFs has been fully announced. The details are as follows:
Source: PANews
In terms of the underlying mechanics, these funds are nearly identical. Each ETF is sponsored by a reputable institutional party, holds spot Ethereum with a qualified custodian, and relies on a core team of professional market makers to create and redeem market share. The funds have the same standards of investor protection, including insurance against broker insolvency 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 Grayscale Ethereum Trust (ETHE), which charges a 2.5% management fee.
Most, but not all, Ethereum ETFs are temporarily waiving or reducing fees to attract investors. The exceptions are Greyscale Ethereum Trust and Invesco Galaxy Ethereum ETF (QETH).
Where can I buy it?
In short: almost all major broker platforms. Every Ethereum spot ETF listed 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 Option 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, among others, to act as intermediaries.
Once the Ethereum ETF is listed on a public exchange, it is expected to be available for trading by all reputable brokers and other institutions.
Will the Spot Ethereum ETF offer staking?
Maybe, but not in the short term.
Staking involves depositing ether into a validator node on the Ethereum beacon chain. Staked Ether earns a percentage of network fees and other rewards, but may also be "slashed" — or forfeit the pledged collateral — if a validator misbehaves or fails.
Staking is attractive because it can significantly increase returns. As of July 19, the annualized yield was approximately 3.7%, according to StakingRewards.com.
Earlier this year, several issuers, including Fidelity, BlackRock and Franklin Templeton, sought regulatory approval to add staking functionality to Ethereum spot ETFs. The SEC rejected the requests.
It comes down to a liquidity issue, according to several people involved in the talks who spoke on condition of anonymity. It usually takes several days for staked Ether to be withdrawn from the Beacon chain. This is a problem for issuers as they need to redeem ETF shares promptly upon request.
Issuers are still exploring ways to add staking functionality to existing Ethereum spot ETFs — possibly by maintaining a “cushion” of liquid spot ether — but a viable plan is at least several months away, people familiar with the matter said. time. Currently, Ethereum ETFs cannot be staked.
Why buy an Ethereum ETF?
Bitcoin and Ethereum represent units of ownership of the underlying blockchain, and therefore its value. Beyond that, they're very different.
Bitcoin may be a long-term hedge against inflation, while Ethereum is closer to a technology investment. Vetle Lunde, senior analyst at K33 Research, said in an interview that the main premise of blockchain is to “eliminate intermediaries, enable 24/7 operation of financial services such as trading and lending, as well as tokenization, digital collectibles and digital identity."
While the crypto markets are closely correlated at the moment, this may not always be the case. Therefore, Ethereum spot ETFs enable investors to meet their diversified investment needs.
Can it rival spot Bitcoin ETFs in popularity?
Bloomberg ETF analyst James Seyffart said demand for an Ethereum spot ETF will be 20% of a spot Bitcoin ETF. This is because Ethereum’s market cap is roughly one-third that of BTC. Additionally, these ETFs lack a key advantage of holding ether: investors cannot stake it, thereby generating income. But James Seyffart said that even if they are smaller, they will be "very successful" by the standards of past ETF issuances. Similarly, K33 Research predicts that inflows will reach $4 billion, or a quarter of the Bitcoin spot ETF, in the first six months of trading.
Leah Wald, chief executive and president of Cyberpunk Holdings, said in an interview that the key to judging success is to evaluate its performance after six months of trading, rather than just the "day of trading" and its performance in the first few weeks. She pointed out that these products are launched in the summer, which is the "low season" for transactions. Additionally, success should be judged by volume and spreads, not just inflows. Because the health of these indicators predicts future asset management (AUM) growth, healthy indicators will make investors feel that it is safe to allocate funds to these new securities.
Who will invest in them?
Institutional investors such as hedge funds, pension funds, banks, and endowments. Retail investors can also purchase directly or through portfolio allocation through a wealth advisor. The latter will likely dominate the first six months of trading, as more than 80% of total AUM comes from non-professional investors, according to data from Spot Bitcoin ETFs.
How will ETFs impact the crypto market?
If K33’s forecast of $4 billion in inflows within 6 months is accurate, at current prices, it would mean that 1% of all ether in circulation would be held in ETFs by the end of the year. Lunde said this holding would be “good” to boost Ethereum’s price in the second half of the year.
Historical experience shows that capital inflows will also benefit the overall market. New capital inflows into Bitcoin via ETFs boosted crypto market capitalization by 46% in 2024, according to K33 data. Lunde expects these products "can further expand the overall market." Additionally, Bitcoin ETF investors “have proven to be able to take volatility in stride, with flows stable even during deep corrections,” suggesting that new investors committed to long-term investing 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 industry. This brings a “solid and much-needed endorsement” to the crypto industry.
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reproduced with permission from: "PANews"
Original author: Cointelegraph, Fortune
