- Ether ETFs have a better chance of gaining regulatory approval than Bitcoin ETFs due to Ethereum’s more diversified use cases beyond just a store of value.
- However, regulatory concerns around volatility and manipulation still pose challenges to getting crypto ETFs approved, even for Ether.
- The growth of the crypto ETF market depends on regulators becoming more comfortable with crypto exposure over time as familiarity increases.
The issuer of the VanEck Bitcoin Trust this week dropped its management fee to zero for a limited time in an attempt to attract more capital to that fund.
The Current State of Crypto ETFs
Bitcoin ETFs have struggled to gain traction so far. The SEC has rejected several proposals for Bitcoin ETFs due to concerns around volatility and potential for manipulation.
However, there are some Bitcoin ETFs that have been approved. The ProShares Bitcoin Strategy ETF (BITO) launched in 2021 as a futures-based ETF. The Valkyrie Bitcoin Strategy ETF (BTF) is another futures-based option. Grayscale has also converted its Bitcoin Trust into an ETF, trading under GBTC.
While these products exist, they have not seen huge inflows so far. The SEC remains hesitant to approve a spot Bitcoin ETF.
The Potential for Ether ETFs
In contrast, Ether ETFs may stand a better chance of gaining regulatory approval and seeing significant investment.
Unlike Bitcoin, Ethereum has a more diversified use case beyond just a store of value. The Ethereum network is the foundation for decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and more. This wider utility could make regulators more comfortable with Ether exposure.
Ether also has plans to transition to a proof-of-stake model, which could alleviate energy consumption concerns that regulators have around Bitcoin mining. Staking rewards could also provide a yield on Ether ETFs.
Major providers like VanEck have filed for Ether ETFs, indicating strong interest on the product side. If approved, these could attract significant investment flows into Ether.
Risks and Challenges
However, Ether ETFs are not guaranteed to succeed. Regulators still have concerns around volatility and manipulation in crypto markets that could lead to rejections. And if Bitcoin ETFs have not attracted huge investment so far, demand for Ether ETFs is also uncertain.
Ether also faces its own challenges. The network still needs to successfully transition to proof-of-stake without any hiccups. Competition from other Layer 1 blockchains is also increasing. On the regulatory side, debates around whether Ether should be classified as a security have not fully subsided.
Outlook for Crypto ETFs
The growth of the crypto ETF market ultimately depends on regulators becoming more comfortable with crypto exposure. As familiarity increases and concerns around volatility and manipulation are addressed, approval prospects may improve.
In the near term, Ether ETFs seem more viable than Bitcoin given Ethereum’s more diversified use cases. But major inflows into even Ether ETFs are not guaranteed given the slow start for Bitcoin products. Longer term, if crypto gains mainstream adoption, the ETF market could grow to encompass a variety of digital assets.
Conclusion
While progress has been slow, there are some signs regulatory attitudes toward crypto ETFs are thawing. Ether products in particular stand a stronger chance than Bitcoin in the near term. But uncertainty remains around how quickly the market will develop.
