Investing in Ethereum ETFs: what you need to know

Ethereum (ETH -0.43%) exchange-traded funds (ETFs) offer a convenient way to invest in the second largest cryptocurrency by market capitalization, similar to buying stocks. Much like in the early days of Bitcoin ETFs, the Ethereum ETF landscape currently offers options based on futures contracts, while Cash ETFs are still awaiting regulatory approval.

Cryptocurrency

Cryptocurrency is a decentralized and secure digital currency, based on blockchain technology, which offers new investment opportunities.

In this article, we will explore the Ethereum ETFs available, looking at both currently accessible futures-based products and the potential future of spot Ethereum ETFs. We will also provide guidance on how to invest in these ETFs, offering an overview of their structure, the benefits they offer, and considerations for investors looking to add exposure to Ethereum to their investment portfolios.

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What is this?

What is an Ethereum ETF?

The simplest way to understand Ethereum ETFs is to divide them into two main components. Ethereum itself is a blockchain platform with its own cryptocurrency, Ether (ETH). It is widely used for its smart contract functionality, which enables automatic, decentralized agreements that execute when their conditions are met.

Ethereum (ETH)

Ethereum is a blockchain created in 2015 that relies on a decentralized network of computers around the world.

An ETF is an open-ended investment fund that holds assets such as stocks, commodities, bonds or even cryptocurrencies. ETFs are unique because they trade on an exchange much like individual stocks, providing the liquidity and accessibility that traditional mutual funds don’t.

Combining these elements, an Ethereum ETF is a type of investment fund that owns Ethereum directly or invests in related assets. derivatives like Ethereum futures. This setup allows investors to gain exposure to Ethereum’s market movements without purchasing and holding the actual cryptocurrency through a crypto exchange or dealing with the complexities of digital wallet security.

Essentially, when you buy shares of an Ethereum-based ETF, you are indirectly investing in the performance of Ethereum with all the ease of trading traditional stocks.

Assets

What do Ethereum ETFs contain?

Due to regulatory constraints, US Ethereum ETFs are currently unable to directly hold Ethereum. Instead, these ETFs gain exposure to Ethereum through Ethereum eventually contracts traded on the Chicago Mercantile Exchange (CME). These futures contracts allow investors to speculate on the future price of Ethereum without the challenges – such as security and custody – of actually managing the assets. cryptocurrencies.

Since these futures contracts are based on the anticipated future price of Ethereum, they provide investors with a method to gain indirect exposure to Ethereum’s price dynamics. Due to the nature of forward trading, which requires a marginIt is common for Ethereum ETFs to hold significant holdings of cash or cash equivalents.

Low-risk assets, such as money market funds, commercial paper or Treasury bills are often used as collateral for these transactions. This setup ensures that the ETF can meet potential margin calls during periods of high volatility, thereby securing leveraged positions taken on futures contracts.

What is Ethereum?

What is Ethereum?

Ethereum, launched in 2013 by Vitalik Buterinis a complete program decentralized finance (DeFi) platform for decentralized applications (dApps) and smart contracts that operate autonomously without a central authority. Ether is the native cryptocurrency of Ethereum and is essential for the operation of dApps and the execution of smart contracts.

It serves as “gas,” paying for the computing resources needed to execute operations and giving Ethereum its value. Ether trades on various cryptocurrency exchanges and is used as both an investment and a utility token. In September 2022, Ethereum underwent a major update, going from a proof of work (PoW) has a proof of stake (PoS) system.

This change significantly reduced the platform’s energy consumption by changing the way transactions are verified and blocks are added to the blockchain. Instead of miners solving puzzles, validators now stake Ether for the right to validate transactions and yields, improving Ethereum’s sustainability and scalability.

Spot ETF

Ethereum Spot ETF Approved

Although Canadian securities regulators have authorized spot Ethereum and other Cryptocurrency ETF on sale since April 2021, the United States Securities and Exchange Commission (SEC) has been slower to adopt similar measures. This landscape changed significantly on May 23, 2024, when the SEC finally gave Ethereum ETFs the green light.

However, these ETFs have not yet started trading in the market since the SEC has yet to approve individual prospectuses submitted by ETF issuers seeking to launch these products. SEC Chairman Gary Gensler has suggested the process should be completed by the end of summer, although no specific timeline has been confirmed.

However, once these approvals are in place, Ethereum spot ETFs will be allowed to begin trading on exchanges.

How to buy

How to Invest in Ethereum ETFs

Investing in Ethereum ETFs is simple and follows the same procedure as trading any other ETF or stock. Here’s a step-by-step guide to help you get started:

1. Determine your position size: Decide how much of your portfolio you want to allocate to Ethereum ETFs in terms of monetary value. Consider whether this the investment is suitable with your overall risk tolerance and investment strategy compared to regular actions.
2. Choose the right ETF: In the following section, we have provided a table of the top Ethereum ETFs currently available. Choose the one that best suits your needs based on factors like fees, liquidity, and past performance.
3. Search for the ETF on your brokerage: Locate the ETF by typing its full name or ticker symbol into your brokerage’s search function. Be sure to select the “stocks” or “shares” option to ensure you are purchasing the ETF itself and not options based on it.
4. Enter an order: Specify the number of shares you wish to purchase. You can place a market orderwhich executes the transaction at the next available price, or a limited orderwhich sets a maximum price you are willing to pay and only executes if the stock price reaches or falls below that threshold.
5. Finish: If your order is successful, your brokerage account will reflect the purchase, with the ETF shares added and the corresponding cash amount deducted.

The first three

The three best Ethereum ETFs

Here is a look at the largest Ethereum ETFs on the market in terms of assets under management (AUM):

Largest Ethereum ETFs by assets under management, June 2024.

Fund Name Ticker Symbol Net Expense Ratio

Related investment topics

Perspectives

Outlook for Ethereum ETFs

Currently, investors can trade Ethereum futures ETFs, and with recent SEC approval, Ethereum spot ETFs are expected to hit the market soon. ETFs offer the convenience of trading through a regular brokerage account, eliminating the need for a cryptocurrency exchange or self-custody of digital assets.

However, it is important to note that these ETFs incur expense ratios and do not offer the 24/7 trading capability that drives investments in the cryptocurrency sector provide. Looking to the future, much like Bitcoin ETFwhich have generated significant investor interest and led to new price highs for Bitcoin, Ethereum ETFs could also benefit from significant inflows and increased interest from investors. individual investors.

FAQs

FAQs on Investing in Ethereum ETFs

Which Ethereum ETF is best?

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There’s no universal answer, but the VanEck Ethereum Strategy ETF (NYSEMKT:EFUT) is a great candidate with a lower expense ratio of 0.66%.

Is there an Ethereum ETF in the US?

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US investors can currently purchase Ethereum futures ETFs. The Spot Ethereum ETFs, which were recently approved, are still awaiting launch.

How to get Ethereum ETFs?

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You can buy Ethereum futures ETF shares through most brokerages. Spot Ethereum ETFs are still not available.

Is there an Ethereum spot ETF?

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Spot Ethereum ETFs are available on Canadian exchanges, denominated in Canadian and US dollars. US-listed spot Ethereum ETFs are still not available, although they have received regulatory approval.

Tony Dong has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Ethereum. The Motley Fool has a disclosure policy.

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