- Spot ether ETFs are set to begin trading on Tuesday, allowing investors to directly invest in ether, the cryptocurrency used in the Ethereum network.
- Ethereum is a blockchain platform that enables smart contracts and has various use cases beyond just digital currency, such as decentralized finance (DeFi), supply chain tracking, and potentially even stock trade settlement.
- The launch of spot ether ETFs is seen as a way to educate the public about the broader applications of Ethereum compared to Bitcoin, which is often viewed as digital gold or a store of value.
Roughly six months after spot bitcoin exchange traded funds debuted, spot ether ETFs are about to get their moment in the sun. These ETFs will invest directly in ether, which is the cryptocurrency used in the Ethereum network.
— BlockNews.com (@blocknewsdotcom) July 23, 2024
Spot Ethereum ETF trading is now live, but $ETH has remained flat at $3,500
Were the ETFs priced in?
Spot Ether ETF Applications
Several asset managers have filed for spot ether ETFs, including:
- Grayscale Ethereum Mini Trust (ETH)
- Grayscale Ethereum Trust (ETHE)
- Bitwise Ethereum (ETHW)
- VanEck Ethereum (ETHV)
- 21Shares Core Ethereum (CETH)
- Invesco Galaxy Ethereum (QETH)
- Fidelity Ethereum (FETH)
- Franklin Ethereum (EZET)
- iShares Ethereum Trust (ETHA)
Like the spot bitcoin ETFs that launched in January, most are waiving fees initially, in many cases for up to a year.
How Bitcoin ETFs Have Performed
By the standards of ETF launches, spot bitcoin ETFs have been a success. They recently topped $17 billion in net flows year to date since their debut. For a new asset class, that is a big hit.
However, at $1.3 trillion in total assets, bitcoin has about three times the value of ether, which has about $414 billion in assets. That may limit the initial appeal of ether ETFs.
Bitcoin prices rose going into the launch of spot bitcoin ETFs. Ether has been a bit spottier. It is up 50% in 2024, but most of the gain came in the first three months of the year.
Educating Investors on Ethereum’s Use Cases
Still, for Ethereum enthusiasts, the primary value of a spot ether ETF is that it’s a perfect vehicle to educate the public about the use cases for Ethereum, which are far greater than anything bitcoin has to offer.
Ben Johnson, Morningstar’s head of client solutions and an ETF research veteran, noted that while bitcoin is often advertised as “digital gold,” Ethereum is more like “picks and shovels.” The case for the former is that it is finite and could be a store of value; the latter is not finite and being used to build some real-world applications, he said.
What the Ethereum Platform Does
Ethereum is a platform for building smart contracts, which are self-executing programs that enforce a pre-existing contract or agreement. It can be as simple as “If I do this, you do that.” The key is that they execute automatically, are done on the blockchain (the Ethereum network), and produce the same result each time they are executed.
They also have a wide variety of applications. The most common use is for decentralized finance or DeFi. This is just a fancy term for using financial services on the blockchain. In theory, you could perform almost any banking services.
Another application for Ethereum is stablecoins. These are cryptocurrencies whose value is pegged to another asset, usually the dollar. Because cryptocurrencies like bitcoin and ether are volatile, many DeFi applications rely on stablecoins for lending, borrowing, and trading.
The promise is a transaction network that, in theory, could be a much cheaper and faster way to do business.
Will This Lead to More Crypto ETF Approvals?
It’s not clear whether this latest development will open the floodgates for more crypto ETFs, or whether the SEC will find a way to stop the potential tidal wave.
Any applicant for other crypto ETFs would still need to show that the underlying market was not subject to manipulation, a crucial requirement for approval of these funds.
But a lot may depend on the political climate. In the past for commodities, the SEC has traditionally required a regulated futures market to trade alongside the asset. Right now that only exists for bitcoin and ether, so it would take time to develop futures markets for other crypto products.
Is Ethereum Essentially a Tech Play?
For the moment, selling Ethereum as a new transaction platform is the main game, and Ethereum enthusiasts have a potent argument that the platform is a technology investment at heart.
A lot of investors view bitcoin as digital gold, a store of value, whereas investors view Ethereum more as a technology play, according to Hunter Horsley, CEO of Bitwise.
