The U.S. Securities and Exchange Commission (SEC) has approved the first-ever exchange-traded funds (ETFs) that invest directly in Ether. This marks a significant milestone for cryptocurrency investors seeking regulated exposure to the world’s second-largest digital asset.
The approval process concluded in July 2024, following an initial green light for exchange rule changes in May. A total of eight funds began trading, offering investors a new way to gain Ether exposure without directly holding the cryptocurrency.
What Are Ethereum ETFs?
Ethereum ETFs are investment funds that track the price of Ether (ETH) and trade on traditional stock exchanges. They function similarly to the spot Bitcoin ETFs launched earlier in the year, providing a familiar and accessible vehicle for both institutional and retail investors.
These funds hold Ether directly, and their share price is designed to reflect the performance of the underlying asset. This structure eliminates the complexities of managing private keys or using cryptocurrency exchanges.
Key Differences from Bitcoin ETFs
While the product structure is similar, Ethereum ETFs are expected to have a different market impact than their Bitcoin counterparts. Analysts project significantly lower initial inflows for Ether funds.
- Smaller Market Capitalization: Ether’s market cap is approximately one-third the size of Bitcoin’s. This naturally influences the total potential investment scale.
- Investor Allocation Limits: Many wealth managers who allocated funds to Bitcoin ETFs in January may have already reached their desired crypto exposure. They are unlikely to reallocate funds quickly due to the tax implications of selling assets held for less than a year.
- Distinct Use Cases: Bitcoin and Ether serve different purposes within the digital asset ecosystem. Bitcoin is often viewed as "digital gold," a store of value. Ether is the native currency of the Ethereum blockchain, which supports smart contracts and decentralized applications. Many investors see them as complementary, not competing, assets.
The Impact of Missing Staking Rewards
A major point of discussion for these new ETFs is that they will not participate in staking. Staking is a process where investors lock up their crypto to help secure the Ethereum blockchain and earn rewards, currently around 3.2% annually.
Issuers omitted this feature due to regulatory uncertainty. Without staking, Ether ETFs lose a significant source of potential yield, which may make them less attractive to certain investors seeking passive income from their holdings. 👉 Explore more strategies for yield generation
Expected Market Performance and Flows
The approval of these ETFs was largely anticipated by the market, meaning the initial price reaction may be muted. However, their long-term flows could still have a substantial impact on the price of Ether.
Analysts from trading firms like Wintermute estimate that Ether ETFs could see between $4.8 billion and $6.4 billion in inflows during their first 100 days of trading. This is a fraction of the $13.8 billion that flooded into spot Bitcoin ETFs in a similar period. This tempered expectation is based on the factors of market size and existing investor allocations.
Frequently Asked Questions
How many Ethereum ETFs have been approved?
Eight Ether ETFs have been approved and begun trading. Major asset managers like BlackRock, Fidelity, and Grayscale are among the issuers offering these new products.
Can you earn staking rewards with an Ethereum ETF?
No, the currently approved Ether ETFs in the U.S. do not offer staking rewards. This was a concession made by issuers to gain regulatory approval amidst ongoing uncertainty about how staking would be classified by the SEC.
Should I invest in a Bitcoin ETF or an Ethereum ETF?
Bitcoin and Ethereum offer different value propositions. Bitcoin is often considered a monetary commodity and store of value. Ethereum is a programmable blockchain that powers a vast ecosystem of decentralized applications. Many portfolios may include both to achieve diversified crypto exposure. It depends on your investment thesis and risk tolerance. 👉 Get advanced methods for portfolio diversification
Will Ethereum ETFs cause the price of ETH to go up?
While the launch introduces a new source of demand, the immediate price impact may be limited as the approval was widely expected. Long-term price appreciation will depend on sustained inflows into the ETFs and broader adoption of the Ethereum network.
How do I start trading an Ethereum ETF?
You can trade these ETFs through any standard brokerage account, just like you would trade a stock or any other exchange-traded fund. You will need to search for the specific fund’s ticker symbol to place a trade.
Are Ethereum ETFs safer than holding Ether directly?
ETFs eliminate the technical risks of self-custody, such as losing private keys or falling victim to hacking. However, they introduce counterparty risk with the fund issuer and are still subject to the high volatility of the crypto market. They are a trade-off between convenience and direct ownership.