Ethereum ETFs Start Trading Tuesday. Here’s What You Need to Know.

These instruments follow in the footsteps of the 11 Bitcoin ETFs that have accumulated more than $54 billion in assets under management since their launch in January, and Bitcoin’s value has risen 47% this year. Here’s everything you need to know about their Ethereum counterparts.

What is an Ether ETF?

Ether is the native cryptocurrency of the Ethereum blockchain. Despite SEC reservations, ether is legally considered a commodity, but the corresponding ETFs would be securities.

ETFs first appeared on the market in 1993. The funds pool together a group of securities, such as a handful of different energy stocks, and their price matches the indexes they track. They are listed on exchanges and can be traded during market hours, so they function like stocks.

Ether spot ETFs will track the spot or current price of Ether. The products give investors access to the underlying cryptocurrency without having to own a cryptocurrency wallet. The ETFs will be set up as donor funds, meaning investors will own a share of the Ether held by the funds.

Who issues it and what are the fees?

Eight asset managers have offered to offer Ethereum ETFs: BlackRock, ArkInvest/21Shares, VanEck, Grayscale, Fidelity, Bitwise, Franklin Templeton, and Invesco/Galaxy Digital. Each instrument will be nearly identical, so the fees charged to investors are competitive. At the moment, we know that Franklin Templeton will charge 0.19%, VanEck 0.20%, and Invesco and Galaxy Digital will charge 0.25% for the combined ETF.

The full list of fees will be revealed when the final registration statements, or S-1s, are filed with the Securities and Exchange Commission. That will be Tuesday, if all eight companies begin trading.

Where can I reach them?

It will be listed on the NASDAQ, the Chicago Board Options Exchange (CBOE) and the New York Stock Exchange.

Why would someone buy an Ethereum ETF?

Bitcoin and ether represent units of ownership—and therefore value—of the underlying blockchain. Beyond that, they are quite different.

While Bitcoin may serve as a long-term hedge against inflation, Ethereum is more of a technology investment. The main premise of blockchain is to “remove the middleman and enable 24/7 operation in financial services, such as trading and lending, as well as tokenization, digital collectibles and digital identity,” said Veit Lund, a senior analyst at K33 Research. luck.

He adds that while crypto markets are currently closely interconnected, this may not always be the case, so Ether ETFs allow investors to diversify into the corners of the crypto economy they want to invest in.

Will its popularity match that of Bitcoin ETFs?

James Seyfart, an exchange-traded fund analyst at Bloomberg, said demand for the funds would be 20% of the demand for bitcoin ETFs. luckThis prediction, Seyvart adds, is because ether’s market cap is one-third the size of bitcoin. The ETFs would lack a key benefit of holding ether: investors wouldn’t be allowed to stake, which generates returns, he adds. But even at this smaller scale, they would be “very successful” by any standard for ETF launches, Seyvart says. Similarly, K33 Research predicts inflows of $4 billion in the first six months of trading — a quarter of the size of spot bitcoin ETFs.

When judging their success, it’s important to evaluate performance after six months of trading, not just on “game day” and the first few weeks, said Leah Wald, CEO and president of Cyberpunk Holdings Inc. luckShe points out that launching these products in the summer means they will enter the market when trading is typically “quieter.” Additionally, success should also be judged by volume and exposure, not just inflows, adding that the health of these metrics drives future growth in assets under management as investors feel safe allocating dollars to these new securities.

Who will invest in them?

Institutional investors, such as hedge funds, pension funds, banks, and endowments. Individual investors will also be able to access them, either by purchasing them directly, or by allocating portfolios through wealth advisors. The latter group is likely to dominate the first six months of trading, with the first-quarter indicators for bitcoin ETFs revealing that more than 80% of total assets under management were from non-professional investors.

How will ETFs impact the cryptocurrency market?

If K33’s prediction of $4 billion inflows over six months is correct, at current prices, that would mean ETFs will absorb 1% of ether in circulation by the end of the year. That absorption is “well-positioned” to boost ether’s price in the second half of the year, Lund says.

Historical data suggests that inflows will also be bullish for the broader market. According to K33, new capital flowing into Bitcoin via ETFs has boosted the cryptocurrency’s market cap by 46% in 2024. Lund expects the products “may further expand market power” because they enable marginal capital to enter the market. Additionally, Lund says that Bitcoin ETF investors “have proven to be nimble in handling volatility, and inflows have been strong even during deep corrections,” suggesting that ETFs could open up the market to new, long-term investors.

Finally, with traditional finance giant BlackRock issuing a fund, it shows the company is getting deeper into cryptocurrency, giving the industry “a much-needed and powerful stamp of approval,” he says.

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