Key Takeaways:
- Spot Ethereum exchange-traded funds (ETFs) directly hold Ether (ETH) and provide a regulated and accessible way to invest in Ethereum.
- Major asset managers like Grayscale, BlackRock, and VanEck have launched spot Ethereum ETFs.
- Spot Ether ETFs are traded on traditional stock exchanges, allowing traders to gain exposure without directly managing cryptocurrency.
- They offer simplicity, regulatory oversight, and liquidity, but they come with higher management fees and no staking rewards compared to directly holding Ether.
Introduction
In this article, discover what spot Ethereum ETFs are and how they matter for the cryptocurrency industry. We explore the key players entering this space and their offerings, giving traders a clear picture of their options. We also cover the possible impact these ETFs could have on the crypto market and how they might shape the future of Ethereum trading.
What Are Spot Ethereum ETFs?
Spot Ethereum ETFs, which track the price of Ether, are investment vehicles that pool money from investors to purchase Ethereum. These funds are managed by investment firms and traded on traditional stock exchanges, offering an accessible way to invest in digital currency even for those who don’t own a crypto wallet. In other words, instead of holding Ethereum directly in a wallet, investors can buy a share of spot Ethereum ETFs.
When investing in a spot Ethereum ETF, a trader is essentially buying shares that represent ownership of the fund’s Ether holdings. This structure allows traders to gain exposure to Ethereum without the need to purchase and store the cryptocurrency themselves. The creation and redemption process of these ETFs involves authorised participants depositing or withdrawing Ether tokens to maintain the fund’s price alignment with the underlying asset.
Learn more about the different types of crypto ETFs.
Difference From Futures-Based ETFs
Spot Ethereum ETFs differ significantly from their futures-based counterparts. The first eight futures-based Ethereum ETFs were introduced in October 2023 in the US. Ether futures ETFs offer exposure to the price moves of the Ether cryptocurrency, meaning these funds simulate Ether’s changes in price, thus employing futures contracts (a type of derivative), to do so.
To learn more about futures trading, check out our in-depth article on the topic.
In contrast, spot Ethereum ETFs directly hold Ether tokens, offering a more straight-forward approach. The first spot ETH ETFs were approved in July 2024, almost a year after their futures-based counterparts, when nine funds began trading in the US.
By November 2024, the cumulative trading volume in spot Ethereum ETFs has grown to $20 billion.
How Do Spot Ethereum ETFs Compare to Buying Ethereum Directly?
Investing in spot Ethereum ETFs comes with both potential advantages and drawbacks compared to direct Ethereum holdings:
Potential Advantages
- Simplicity: ETFs simplify the investment process by bundling Ethereum within a familiar investment structure, eliminating the need to understand digital wallet storage and exchange platforms.
- Regulatory oversight: As regulated investments supervised by financial watchdogs, ETFs can offer protection and transparency.
- Liquidity: Spot Ethereum ETFs can be easily traded on stock exchanges, providing quick entry and exit options based on a trader’s strategies and market conditions.
Potential Drawbacks
- Higher fees: ETFs leverage management fees, which can be more substantial than those of crypto exchanges to buy ETH. While traders only pay one single transaction fee to buy ETH once, a fund leverages management fees on a monthly basis.
- No staking rewards: By investing in ETFs, traders miss out on staking rewards, which can generate passive income for direct Ether holders. Due to the absence of staking opportunities, traders may earn higher returns by staking Ether directly on an exchange rather than holding it as an ETF.
Learn more about ETH staking opportunities.
Which Spot Ethereum ETFs Are Available?
In July 2024, eight US spot Ethereum ETFs began trading on Nasdaq, CBOE, and NYSE exchanges. The US spot Ethereum ETFs currently available include:
- Grayscale: Grayscale Ethereum Mini Trust (ETH)
- Franklin Templeton: Franklin Ethereum Trust (EZET)
- VanEck: VanEck Ethereum Trust (ETHV)
- Bitwise: Bitwise Ethereum ETF (ETHW)
- 21Shares: 21Shares Core Ethereum ETF (CETH)
- Fidelity: Fidelity Ethereum Fund (FETH)
- BlackRock: iShares Ethereum Trust (ETHA)
- Invesco: Invesco Galaxy Ethereum ETF (QETH)
Monthly Fee for Spot Ethereum ETFs
At the time of writing, monthly fees for the spot ETH ETFs range from 0.15% for Grayscale’s fund to 0.25% for Fidelity, iShares, and Invesco’s products. Many issuers are also offering promotional fee waivers to attract investors. For example, Franklin is waiving fees until 31 January 2025, or the first $10 billion in fund assets, whichever comes first; BlackRock offers reduced fees to 0.12% until 23 July 2025, or the first $2.5 billion in fund assets, whichever comes first.
All but Invesco’s fund have similar offers running until the end of 2024 or early 2025.
Where to Buy Spot ETH ETFs
Buying spot Ether ETFs is the same as buying a traditional financial (TradFi) stock, with these ETFs available for trading on traditional exchanges, including Nasdaq, Cboe BZX Exchange, and NYSE Arca.
This means they are accessible through standard brokerage accounts.
It’s important to note that, unlike the 24/7 cryptocurrency market, these ETFs will only be tradeable during regular market hours. This limitation may lead to price gaps between the ETF and the underlying Ethereum during non-market hours.
Potential Impact on the Crypto Market
The launch of spot Ethereum ETFs has the potential to strongly impact Ethereum’s price, adoption, and volume, as it opens up opportunities for both retail and institutional investors to invest in the cryptocurrency.
The introduction of spot Ethereum ETFs has attracted significant institutional interest. On the first day of trading, these ETFs saw over $1 billion in trading volume, with some large movements indicative of institutional buyers. By November 2024, volume has multiplied to an impressive $20 billion.
How Do the Spot Ethereum ETFs Compare in Performance to Bitcoin ETFs?
While the initial performance of Ethereum ETFs has been strong, they fell short of the benchmark set by spot Bitcoin ETFs, which pulled in approximately $12.7 billion over their first three months. In contrast, by November 2024 (four months after launch), Ethereum ETFs broke $8 billion in assets under management (AUM) for the first time.
This difference can potentially be attributed to Bitcoin’s simpler narrative as an emerging store of value, which is more easily understood by traders compared to Ethereum’s more complex value proposition of smart contract capabilities and decentralised applications (dapps).
Despite this disparity, the launch of Ethereum ETFs is still seen as a significant milestone for the cryptocurrency market, offering traditional investors a new avenue to gain exposure to Ether.
Conclusion
The introduction of spot Ethereum ETFs has had a significant impact on the cryptocurrency investment landscape. These new financial products offer an accessible and regulated way to gain exposure to Ethereum, potentially attracting a wider range of investors.
The competitive fee structures and backing of major asset management firms suggest a growing acceptance of digital assets in traditional finance. This development has the potential to boost Ethereum’s adoption and price, though the unique role of Ether in the blockchain ecosystem might lead to more complex market dynamics.
As the crypto market continues to mature, spot Ethereum ETFs represent a crucial step in bridging the gap between digital assets and conventional investment strategies. While they may not match the initial success of Bitcoin ETFs, these new offerings provide traders with more options to diversify crypto assets in their TradFi portfolios. The long-term effects of these ETFs on Ethereum’s growth and the broader cryptocurrency market remain to be seen, but their launch marks an important milestone in the ongoing integration of digital assets into mainstream finance.
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