Spot Ethereum ETFs Approved to Start Trading
The Securities and Exchange Commission today approved the listing of multiple spot Ethereum exchange traded funds, ending a more than eight-month process that reflected both the unpredictable path of cryptocurrency investments but also the skyrocketing appetite for them.
The ETFs based on the spot price of ether, the second largest cryptocurrency with a $420 million market capitalization and token of the Ethereum smart contracts blockchain, will likely begin trading Tuesday.
21Shares, Franklin Templeton, Bitwise, Fidelity, and Invesco which filed an application jointly with Galaxy, all confirmed their approvals in emails to etf.com. BlackRock and VanEck also received approvals. Grayscale is planning to start trading its two Ethereum-based ETFs on Tuesday, a person with knowledge of the approval process said. ProShares submitted its applications after the others, so the SEC was widely not expected to rule on it.
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"It's about time!" wrote Billy Luedtke, CEO and founder of Intuition, an Ethereum-based data authentication protocol and creator of the blockchain consulting practice at EY, in an email to etf.com. "The approval of the ETH ETF marks a significant milestone, legitimizing Ethereum and providing a gateway for institutional investors to participate."
He added: "Ethereum's value proposition extends beyond just being a hedge against currency devaluation, in contrast to bitcoin; it also serves as a safeguard against a centralized internet."
The spot Ethereum ETFs will become the second exchange-traded products based on the ongoing price of a major digital asset to list on U.S. exchanges. Expense ratios for the ETFs will fall almost entirely in the 0.15% to 0.25% range, although seven of the funds will waive at least part of their fees for initial periods and the Grayscale Ethereum Trust (ETHE), a conversion from an existing trust, will charge a 2.5% fee.
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Ether was recently trading at about $3,500, down more than 2% over the past 24 hours, according to cryptocurrency markets data provider CoinMarketCap, as investors had already priced in the approvals. It has risen more than 45% year-to-date, despite an early July swoon that sent the digital asset below $3,000 for the first time since early May.
Spot Ethereum ETFs' Path to SEC Approval
The funds' approval completes a dramatic turn in the funds' path, which began last September with filings from VanEck and Ark/21 Shares. Little more than two months ago, the SEC had appeared reluctant to approve the ETFs.
But regulators appeared to buckle to political pressures with crypto-skeptical Democrats and more receptive Republicans attempting to win over digital asset investors and developers or at least not alienate them in a tight presidential election year. Approval of a 19-B4 rules change submitted in May by the Nasdaq, NYSE and Cboe exchanges increased the likelihood of final approval.
Spot Bitcoin ETFs Soar
The approvals follow roughly six months after the SEC approved 10 spot bitcoin ETFs based on the price of the world's largest cryptocurrency in market value. Those funds and an 11th that began trading in March have generated about $17 billion in inflows since their debut on Jan. 11, according to U.K.-based asset manager Farside Investors, and now total about $55 billion in assets.
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"Today's approval represents further proof that crypto as an asset class is here to stay," Ophelia Snyder, co-founder and president of 21Shares, wrote in an email to etf.com, adding: "The deman is there, and we are thrilled to be able to offer investors in the U.S. market exposure to the Ethereum blockchain through the ETF wrapper on a regulated exchange."
To be sure, some crypto observers expressed skepticism that ether-based funds would draw similar interest. In a note to etf.com, Peter Eberle, the president and chief investment officer of Lafayette, Calif.-based digital asset fund manager Castle Funds, questioned investor interest without the ability to stake the asset.
"The ETH ETFs cannot stake their ETH," wrote Eberle. "That means the ETFs will underperform holding and staking ETH by 3% plus slippage due to trading and management fees. I don’t see sophisticated investors buying this ETF."
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But in an email to etf.com, Matt Hougan, Chief Investment Officer at Bitwise Asset Management, wrote that the spot Ethereum-based funds would allow investors to diversify their crypto portfolios. "Most investors who allocate to crypto will choose to buy some bitcoin and some Ethereum," he wrote. "They are different assets that do different things, and investors love diversification. The default ratio is two parts bitcoin, one part Ethereum. It's a beautiful mix."
UPDATE (July 22, 2024, 5:25 p.m. ET): Adds issuers' confirmation, ether price update, and issuers' and analysts' comments.
UPDATE (July 22, 2024, 8:10 p.m. ET): Adds SEC BlackRock and VanEck approvals.