As the digital asset market continues to grow, investors are looking for new ways to gain exposure to cryptocurrencies, and one of the easiest ways is through exchange-traded funds (ETFs).
After the historic approval of spot Bitcoin ETFs by the US Securities and Exchange Commission (SEC), investors are wondering if other prominent cryptocurrencies such as Ether could see the launch of their own spot ETFs.
In this article, the Investing News Network (INN) will explore the world of Ethereum and review expert forecasts for the future of spot Ethereum ETFs.
What is Ethereum?
Ethereum is a decentralized, open-source blockchain platform. While Bitcoin has legitimized the concept of peer-to-peer (P2P) digital currency, Ethereum has expanded the idea. The platform allows software developers to create decentralized applications that run on the blockchain, called dApps, and smart contracts, which are self-executing agreements with terms directly written in the code. The network also supports a digital currency called Ether, used to pay transaction fees and computational services on the Ethereum network
.
Ethereum ETFs
An ETF is a type of investment fund that holds a collection of underlying assets and trades like a single stock on a market, offering investors exposure to the performance of a particular market, commodity, or asset class without requiring them to invest directly in it.
In this case, Ethereum ETFs track the financial performance of the Ether cryptocurrency and allow investors to use traditional, regulated exchanges to benefit from Ether’s price changes. This means they can avoid complicated technical processes such as setting up and managing cryptocurrency portfolios, navigating through decentralized exchanges, or understanding the underlying blockchain technology
.
Ethereum Spot ETF vs. ETF Futures
Spot Ethereum ETFs hold the underlying assets they aim to track, while Ethereum futures ETFs don’t. Instead, futures ETFs gain exposure by tracking the price of futures contracts, which are financial derivatives that represent an agreement to buy or sell an asset at a fixed price and date in the future. Futures ETFs tend to involve additional risks, such as price discrepancies between futures and spot markets
.
Which Firms Have Requested Approval of Ethereum Spot ETFs?
Eight institutions await approval from the SEC for spot Ethereum ETFs: BlackRock, VanEck, ARK 21Shares, Grayscale, Fidelity, Invesco, and Galaxy Digital through a joint proposal, in addition to Franklin Templeton, which is the most recent financial firm to apply, having done so in February.
VanEck was the first institution to apply in July 2021, but the SEC has repeatedly postponed its decision on this application and others on multiple occasions. Cboe Digital, the cryptocurrency arm of Cboe Global Markets and one of the few U.S. exchanges approved to offer Bitcoin and Ether futures on margin, submitted VanEck’s last application, along with the proposal on behalf of ARK 21Shares, on September 6
, 2023.
Also in September, shortly before applying for spot Ethereum ETFs, Grayscale applied to offer Ethereum futures ETFs, a move that some analysts considered strategic, intended to force the SEC to approve spot Ethereum ETFs. Grayscale’s subsequent demand to convert its Ethereum trust into a spot Ethereum ETF in October 2023 sent shares up 6.15 percent, indicating
demand.
The SEC regulators announced just a few days before the original December 26 deadline that they would postpone the decision on VanEck’s spot ETFs and Grayscale’s Ethereum futures ETFs until May 23, citing the need for further consideration of the complex regulatory issues involved.
Recently, Coinbase representatives met with the SEC to present Grayscale’s proposal, hoping to influence regulators in their favor. During the meeting, Coinbase said it had partnered with the Chicago Mercantile Exchange to closely monitor trading activities for fraud and manipulation. They have agreed to share information to ensure transparency and regulatory compliance
.
Given Ethereum’s current price momentum and the wait around the next SEC decision on spot Ethereum ETFs, investors and market observers are watching closely to see how these factors could influence future growth and mainstream adoption of the world’s second largest cryptocurrency.
