Ethereum ETFs Have Been Approved, but What Does This Mean?
In a groundbreaking development, U.S. regulators have finally approved the first spot Ethereum (ETH) ETFs on Monday, which now enables US investors to trade ETH on the likes of Nasdaq, NYSE, Arca, and Cboe BZX. This follows years of filing attempts and lobbying by crypto funds to get ether ETFs approved by the Securities and Exchange Commission (SEC).
In terms of the initial impact, on their first day alone, these ETFs amassed over $1 billion in trading volume, led by BlackRock's iShares Ethereum Trust, which saw the largest net inflows. But it is important to note that unlike the previous Bitcoin ETF approval, analysts appear to be leaning towards the notion that Ethereum ETFs will not experience the same level of volume.
But this is not to say there shouldn't be some excitement. Ether ETFs have only just got started, and this development could open up new opportunities.
For now, the most important thing for crypto enthusiasts and investors is to learn more about this latest update, what it means for the crypto space and its various stakeholders, and whether European residents can also benefit from this.
We’ll take a look at:
- What is an Ethereum (ETH) ETF?
- How Ethereum ETFs Came To Be Approved
- Who Are the Main Beneficiaries?
- Can European Crypto Investors Invest in Ethereum ETFs?
- What the Future Holds for Ethereum ETFs?
Let's dive right in!
What is an Ethereum (ETH) ETF?
For those who are new to the world of crypto, it's perhaps best to first give a brief explanation of what an Ethereum ETF is, and how one works.
Put simply, an Ethereum ETF is an exchange-traded fund designed to track the performance of Ethereum's native token, Ether (ETH). By investing in an Ethereum ETF, investors can gain exposure to the price movements of ETH without the need to purchase and manage the cryptocurrency directly. These funds are traded on traditional stock exchanges, making it easier for both institutional and retail investors to participate in the crypto market.
Ethereum ETFs can be categorised into two types; spot ETFs, which hold actual ETH, and futures ETFs, which invest in contracts predicting future ETH prices, offering diverse ways to engage with Ethereum's market dynamics.
How Ethereum ETFs Came To Be Approved
The SEC's approval of Ethereum ETFs follows a lengthy and intricate journey, marked by numerous filing attempts and significant lobbying from leading crypto funds. Initially, the SEC had considerable reservations about market manipulation and the regulatory status of Ethereum, particularly due to its dependence on staking.
But in August 2023, a turning point came after a successful challenge by Grayscale Investments in favour of Bitcoin ETFs, which resulted in funds also applying for Ethereum ETFs; which also prompted the SEC to reconsider its stance on the aforementioned. The regulatory body then required issuers to make key amendments to their filings, particularly the exclusion of staking activities, whilst also ensuring:
1) Robust market surveillance to prevent market manipulation and ensure fair pricing
2) Strong investor protection measures
3) Ethereum being held in secure custody by qualified custodians
4) An adherence to strict AML and KYC regulations
By May 2024, the SEC approved the 19b-4 forms filed by exchanges, which paved the way for these ETFs to be listed. The final step involved issuers updating their S-1 forms with detailed disclosure documents and management fee structures, leading to the ultimate green light from the SEC on Monday.
What Has Happened Since Their Approval
Since the approval of the first spot, Ethereum ETFs, trading volumes surged past $1 billion on the first day, demonstrating solid market interest. In terms of net inflows, leading the pack was BlackRock's iShares Ethereum Trust ($266.5 million), followed closely by Bitwise's Ethereum ETF ($204 million) and Fidelity's Ethereum Fund ($71.3 million).
However, although ETF analysts like Bloomberg's James Seyffart have characterised the performance of Ethereum ETFs as "a pretty big success", it's important to note that Tuesday's trading volumes still fell short of the $4.6 billion traded in the bitcoin ETFs on their January debut.
In terms of the impact on the price of ETH, the price of the cryptocurrency initially rose above $3,500 ahead of the opening of trade, yet in just the last 24 hours, Ethereum has seen a decline of around 4.3%.
Who Are the Main Beneficiaries?
In terms of who has benefited from Monday's approval, it can be argued that the following stakeholders have all benefited, albeit in different ways:
1) Selected ETF providers
The authorised Ethereum ETF providers like BlackRock, Fidelity, and Grayscale have undoubtedly benefited, and primarily through management fees, and strengthening their market presence and credibility. So although inflows may not be at the desired levels yet, these providers have positioned themselves for significant future growth.
2) Retail investors
Like with Bitcoin ETFs, novice retail investors now have a more straightforward and secure way to invest in Ethereum. By trading ETFs on conventional exchanges, they avoid the complexities and risks associated with direct cryptocurrency ownership, such as wallet management and security concerns.
In terms of existing Ethereum investors, it can be argued that these ETF approvals have laid the foundation for large future inflows, which has the potential to significantly increase the price of the token. Although this is just speculation at this moment in time, many Ethereum investors are strong believers that Ethereum's technology has the potential to revolutionise the world, and are confident of future large-scale demand. So in their mind, Ethereum ETFs will no doubt see massive inflows in the future.
3) Ethereum Foundation
Because the recent approval has brought about an increase in institutional and retail interest and investment in Ethereum (and will continue to do so), there is an argument to be made that the knock-on effects can lead to greater network development and innovation. This is because more funds flowing into Ethereum can spur technological advancements and infrastructure improvements, benefiting the foundation’s long-term goals, and the overall health of the Ethereum ecosystem.
What's more, the crypto market is very much emotionally driven, and this also applies to funds and founders; many of whom are looking to hedge their bets by building on the Layer 1s and 2s that they believe will gain the most traction. For this reason, increased inflows via Ethereum ETFs could be a positive indicator to aspiring Ethereum builders.
4) The overall crypto market
Last but not least, the approval of Ethereum ETFs is a significant step towards mainstream acceptance of cryptocurrencies. Because Bitcoin ETFs have already been approved, this latest approval adds even more legitimacy and regulatory approval, which can help attract even more conservative investors and financial institutions. This broader acceptance can enhance market liquidity, reduce volatility, and potentially lead to more favorable regulatory developments in the future, such as a Solana ETF.
Can European Crypto Investors Invest in Ethereum ETFs?
Unfortunately, there are currently no regulated spot Ethereum ETFs for the European market.
As was discussed in one of our previous articles, Ethereum ETFs haven’t been regulated in Europe as there is no current legal framework provided by the UCITS (The EU’s Undertakings for Collective Investment in Transferable Securities) guidelines, while national financial regulators such as the FCA (Financial Conduct Authority) in the UK have also not given any regulatory approvals.
The good news is that European investors can still gain exposure to Ethereum, albeit indirectly.
For example, ICONOMI offers crypto strategies, which are FCA-regulated diversified portfolios that are managed by seasoned investors. Many of these have significant Ethereum allocations, so what investing in these strategies does is allow investors to benefit from Ethereum's performance, but without direct ownership. One prime example is the 'Stable WCI' strategy, which is designed to provide exposure to an array of different cryptocurrencies, including Ethereum, which accounts for 28.10% of the portfolio.
So until Ethereum ETFs are regulated in Europe, alternatives like ICONOMI's crypto strategies provide an excellent alternative for those seeking exposure to Ethereum in a structured and secure manner.
What the Future Holds for Ethereum ETFs?
Although the approval of Ethereum ETFs hasn't (yet) paralleled the initial trading volume that Bitcoin ETFs saw earlier this year, it's still early days for the second-largest cryptocurrency by market cap. But if Bitcoin's $12 billion in net inflows (as seen in March) via ETFs is anything to go by, then it suggests a promising future for Ethereum ETFs, even if it achieves half of that in the coming months.
As already mentioned, success could also come in the form of additional funding and exposure for Ethereum's network development. Given how Ethereum has frequently received criticism for high-fees and slow transactions, the increased financial resources and awareness generated of the back of Ether ETFs (even indirectly) can potentially bring about improvements to the network.
However, it's essential for investors and enthusiasts to also stay grounded. While the approval of Ethereum ETFs undoubtedly marks a significant milestone for the crypto industry, it's crucial to manage expectations and understand that significant market impacts take time. Patience and cautious optimism will be key as the market adjusts and evolves with this latest addition.
If you enjoyed this article, you may be interested in our other titles:
5 Must-Have Books For Crypto Investing in 2024
Best Crypto Fund Option in the UK [2024]
Is Crypto Halal or Haram? A Guide For Muslim Investors [2024]A Guide For Long-Term Crypto Investing [2024]
Ready to start your journey with us?
Trusted by over 100,000 users from around the world.
