ETFs
How to Make the Most of Ether Spot ETFs
Sometimes overcoming a regulatory hurdle is a very big deal. This is one of those times: The U.S. Securities Exchange Commission (SEC) approved eight Ethereum spot ETF forms last Thursday. And while there is still one more hurdle to clear before funds can actually start trading, things are looking good for crypto number two. Here’s what’s happening and how your wallet could make the most of the situation.
What is the history of Ethereum ETFs?
Before a new exchange-traded product can begin trading, it must first obtain two forms approved by the SEC: one filed by the exchange to list it (Form 19b-4) and one by the ETF manager to register it. public offering (Form S-1). In March, I said that Ethereum spot ETFs (in which ETF providers would buy ether one-for-one to match ETF shares) could be traded in the United States as early as May of this year. Well, they’re not quite commercialized yet, but the 19b-4s, at least, are done and dusted.
On Thursday, the SEC approved 19b-4s from three US exchanges (CBOE, Nasdaq and NYSE) to list Ethereum spot ETFs from eight fund managers (BlackRock, Fidelity, Grayscale, Bitwise, VanEck, Ark, Invesco Galaxy and Franklin Templeton). . These fund managers are now rushing to get their S1s through, so they can trade their ETFs as soon as possible.
Now, “all nine” Bitcoin ETFs began trading on January 11, just a week after the SEC approved 19b-4s – but there’s no guarantee things will be as quick with the Ethereum ETFs. Galaxy Digital says it could take a few weeks or months, and Bloomberg ETF analyst James Seyffart generally agrees. Still, investors are mostly optimistic that ETFs are no longer a question of “if” but “when.”
Bitcoin price and its reaction after nine Bitcoin ETFs began trading on January 11. Chart drawn with TradingView.
And I wouldn’t be surprised to see large inflows into Ethereum ETFs. After all, ETF issuers earn fees per dollar invested, so they’ll have plenty of motivation to sing Ethereum’s praises to their customers. The question is whether these customers (and traditional investors in general) will embrace ether the way they did bitcoin. Ether and bitcoin complement each other quite well in a wallet: if bitcoin is the digital gold, ether is the fast-growing digital technology.
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The market size of Ether is only about a third of that of Bitcoin, which could deter some investors from purchasing Ethereum ETF shares. On the other hand, it wouldn’t take that much demand to drive up the price of ether. Ethereum is also a proof of stake blockchain (meaning there are stakers instead of miners), giving it a much lower electricity bill. This might be better suited to investors who want crypto exposure and environmental, social, and governance (ESG) credibility. And since ETFs are regulated products, institutional investors could purchase ether through ETFs without major problems. So yes, ETFs are likely increasing demand for ether over time, which could increase its price.
What is the opportunity here?
If (like me) you see ETFs as a plus for the price of ether, the most obvious bet might be to buy ether on a crypto exchange like Coinbase. The idea then is to sit back, relax and patiently let the BlackRock team work their magic. Just keep in mind that the usual crypto disclaimer applies here: don’t expect it to be smooth sailing. Keep in mind that there could be a “sell the news” movement once ETFs begin trading (whenever that happens).
And it might be worth keeping an eye out Grayscale Ethereum Trust (ETHE; 2.50%) also. The trust plans to transform into an ETF – as the Grayscale Bitcoin Trust did in January.
THE Grayscale Bitcoin Trust ETF (GBTC; 1.5%) charges much higher management fees than the competition. So once Bitcoin ETFs launched, investors withdrew their funds from Grayscale (red, chart below) – which put short-term selling pressure on the Bitcoin price. If Grayscale is also enthusiastic with its Ethereum ETF fees, you might see something similar with ether.
The SEC has not approved staking in ETFs – a process that allows investors to earn
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on their ether. But you can earn a staking yield of around 4% on an exchange like Coinbase. By doing this, you could actually beat the performance of ETFs. Just keep in mind that it may be more tax efficient to own the ETF – for example, if you hold it in a 401(k) or other tax-advantaged account.