Ethereum spot ETF is about to be launched, learn all you need to know in this article

Source: Cointelegraph, Fortune

Comprehensive editor: Felix, PANews

After years of regulatory obstruction and countless modifications to registration documents, the Ethereum spot ETF has finally entered the market. Chicago Board Options Exchange (Cboe) recently announced that five Ethereum spot ETFs will be listed on the exchange on July 23, including Fidelity Ethereum Fund, Franklin Ethereum ETF, Invesco Galaxy Ethereum ETF, VanEck Ethereum ETF and 21Shares Core Ethereum ETF.

The other four Ethereum spot ETFs will trade on Nasdaq or New York Stock Exchange (NYSE) Arca. At present, these exchanges have not made official announcements, but they are expected to be listed in the near future.

The highly anticipated listing is a defining moment for the crypto market and an opportunity for millions of U.S. institutional and retail investors. These ETFs follow in the footsteps of 11 Bitcoin spot ETFs. Since the Bitcoin Spot ETF was launched in January this year, Bitcoin assets under management have accumulated more than $54 billion, soaring 47% this year. Here’s everything you need to know about the Ethereum Spot ETF.

What is Ethereum Spot ETF?

ETH is the native cryptocurrency of the Ethereum blockchain. Legally speaking, ETH is considered a commodity and the corresponding ETF will be a security, but the US SEC has reservations about this determination.

ETF first entered the market in 1993. These funds bring together a basket of securities, such as several different energy stocks, whose prices align with the index they track. They are listed on exchanges and can be traded during market hours, so they operate similarly to stocks.

The Spot Ethereum ETF will track the spot (or current) price of ETH. These products allow investors to acquire cryptocurrencies without having to own a crypto wallet. These ETFs will be set up as grantor trusts, meaning investors will own a share of the ETH held by the trust.

Who issues it and how much does it cost?

Currently, eight asset management companies plan to launch Ethereum ETFs, and the fee information of 9 Ethereum spot ETFs has been fully announced. The details are as follows:

As far as the underlying mechanism is concerned, these funds are almost identical. Each ETF is initiated by a reputable institutional party, holds spot ETH by a qualified custodian, and relies on a core team of professional market makers to create and redeem shares. The funds have the same standards of investor protection, including insurance against broker insolvency and cybersecurity risks.

For most investors, the deciding factor is fees. Eight of the nine ETFs have management fees between 0.15% and 0.25%. The only exception is Grayscale Ethereum Trust (ETHE), which charges a 2.5% management fee.

Most (but not all) Ethereum ETFs are temporarily waiving or reducing fees to attract investors. The exceptions are Greyscale Ethereum Trust and Invesco Galaxy Ethereum ETF (QETH).

Where can I buy it?

In short: almost all major broker platforms. Every ETH spot ETF listed in the last week of July has received regulatory approval to trade on at least one major U.S. exchange, specifically Nasdaq, New York Stock Exchange (NYSE) Arca, or CBOE (Cboe)BZX.

Everyday investors do not trade directly on these exchanges. Instead, they rely on brokerage platforms such as Fidelity, E*TRADE, Robinhood, Charles Schwab, and TD Ameritrade to act as intermediaries.

Once the ETH ETF is listed on a public exchange, it is expected that all reputable brokers and other institutions will be able to trade it.

Will the spot Ethereum ETF provide staking services?

Maybe, but not in the short term.

Staking involves depositing ETH into a validator node on the Ethereum Beacon Chain. Staked ETH earns a percentage of network fees and other rewards, but it is also possible for validators to be "slashed" - or have their staked collateral confiscated - if they misbehave or fail.

Staking is attractive because it can significantly increase returns. According to StakingRewards.com, as of July 19, the annualized rate of return was approximately 3.7%.

Earlier this year, several issuers, including Fidelity, BlackRock, and Franklin Templeton, sought regulatory approval to add staking functionality to Ethereum spot ETFs. The SEC rejected these requests.

According to several anonymous people involved in the negotiations, it boils down to a liquidity issue. It usually takes several days for staked ETH to be withdrawn from the Beacon chain. This is a problem for issuers because they need to redeem ETF shares in a timely manner upon request.

Informed sources say issuers are still exploring ways to add staking functionality to existing Ethereum spot ETFs — possibly by maintaining a “cushion” of liquid spot ETH — but a viable plan is at least months away time. Currently, ETH ETFs cannot be pledged.

Why buy Ethereum ETF?

Bitcoin and Ethereum represent the unit of ownership of the underlying blockchain, and therefore its value. Beyond that, they're very different.

Bitcoin may be a long-term hedge against inflation, while Ethereum is closer to a technology investment. Vetle Lunde, senior analyst at K33 Research, said in an interview that the main premise of blockchain is to “eliminate intermediaries, enable 24/7 operation of financial services such as trading and lending, as well as tokenization, digital collectibles and digital Identity.”

While the crypto market is closely connected at the moment, this may not always be the case. Therefore, Ethereum spot ETF enables investors to meet their diversified investment needs.

Can its popularity rival spot Bitcoin ETFs?

Bloomberg ETF analyst James Seyffart said that demand for Ethereum spot ETFs will be 20% of spot Bitcoin ETFs. This is because the market cap of ETH is approximately one-third that of BTC. In addition, these ETFs lack a key advantage of holding ETH: investors cannot stake it and thus cannot generate income. But James Seyffart said that even if they are smaller, they will be "very successful" by the standards of past ETF issuances. Similarly, K33 Research predicts that inflows will reach $4 billion in the first six months of trading, accounting for a quarter of the Bitcoin spot ETF.

Cyberpunk Holdings CEO and President Leah Wald said in an interview that the key to judging success is to evaluate its performance six months after trading, rather than just evaluating the performance of the "trading start day" and the first few weeks. . She pointed out that these products are launched in the summer, which is the "low season" for transactions. Additionally, success should be judged by volume and spreads, not just inflows. Because the health of these metrics is indicative of future assets under management (AUM) growth, healthy metrics can make investors feel it is safe to allocate funds into these new securities.

Who will invest in them?

Institutional investors such as hedge funds, pension funds, banks and endowments. Retail investors can also purchase directly or through portfolio allocation through a wealth advisor. The latter is likely to dominate the first six months of trading, as more than 80% of total AUM comes from non-professional investors, according to data from the Spot Bitcoin ETF.

How will ETFs impact the crypto market?

If K33’s prediction of an inflow of $4 billion within 6 months is accurate, at current prices, it means that by the end of this year, 1% of the ETH in circulation will be held by ETFs. Lunde said this holding would be “good” to boost ETH’s price in the second half of the year.

Historical experience shows that capital inflows will also benefit the overall market. According to K33 data, new capital flowing into Bitcoin via ETFs increased the crypto market capitalization by 46% in 2024. Lunde expects these products "can further expand the overall market." Additionally, Bitcoin ETF investors “have proven to be able to take volatility in stride, with flows stable even during deep corrections,” suggesting that ETFs will be of interest to new investors committed to long-term investing.

Finally, the participation of traditional financial giant BlackRock in the issuance shows that the company is delving deeper into the crypto space. This brings a “solid and much-needed endorsement” to the crypto industry.

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