Yahoo Finance

Spot Ethereum ETFs trading to the downside after making their market debut earlier today, but the question now becomes, should you invest? Here to discuss how to pick the right ETF for you is Brian Armour, passive strategies research director at Morningstar and editor at ETF investor. First, Brian, this does follow the debut of Spot Bitcoin ETFs that we saw earlier this year. For those new to these investment options, what's the difference between the two and should you be invested in both?

Yeah, so Bitcoin and Ethereum are are both cryptocurrencies. They share a lot of the same risk characteristics from an investment standpoint. Um, but obviously they're they they follow sort of their own market. Um, so, uh, you know, investing in Bitcoin is more like tangential to, uh, investing in a currency, whereas ether is really the the the backbone of, um, the Ethereum blockchain where there is a lot of different projects, many different, um, uh, uh, technologies coming out of there. So they are different. There could be some validity to investing in both, but in our research so far, um, there's not a meaningful difference in the risk profile if you if you sort of split up the allocation between both or just do one or the other.

And how much do you think this spot ETF, uh, Bitcoin ETF rollout that we saw earlier this year, how will that impact the rollout of the ether ETF and the success that we could potentially see?

Yeah, I think, well, Bitcoin ETFs had a very successful, uh, run in in to start in January and that's continued. Um, we would expect Ethereum ETFs to follow a similar similar blueprint. Um, and so everything's sort of, uh, built into where we expect, um, a similar style of trading, similar issuers, all the same issuers other than, uh, a couple that dropped off. Um, but, um, you know, what what we'd expect really here is that Ethereum is about a quarter of the the market cap of Bitcoin, um, overall. And so we'd expect similar assets, similar flows coming in, uh, but perhaps a little bit less than Bitcoin due to the fact that it's a smaller market and because of the fact that, you know, Bitcoin came off the uh, came off the heels of a decade of of trying to get spot Bitcoin ETFs approved. And so there was really strong, uh, investor interest for for Bitcoin and there might be, you know, a little less interest for for Ethereum at this point as as, you know, we've all all been living through the crypto mainstream, uh, uh, adoption, uh, for for the entire year to date.

And what's the benefit of selecting an ether ETF or a Bitcoin ETF versus just buying that cryptocurrency outright?

Yeah, well, the ETF allows you to to buy inside your your own portfolio through your same broker dealer. Um, it takes the the custody out of your hands so that you don't have to, um, you know, keep a crypto key or be worried about, um, uh, uh, where where you're housing your your cryptocurrencies. Um, so in that way it makes it easier. There's difference in cost as well. They're trading fees tend to be higher for cryptocurrencies, um, on a crypto exchange, but at the same time, like there's no management fee where there are there is for an ETF. Um, so the ETF does come with a little bit higher of a of a uh ongoing charge, but typically cheaper upfront, which makes it uh uh more cost effective for investors. The one thing I would say for Ethereum specifically is that, um, you can stake your Ethereum and and generate some some sort of like passive yield of two to 4%, um, as of right now, um, uh, on on holding Ethereum directly. The ETFs cannot do that. The SEC has not approved that yet. And so that is one thing that that, uh, Ethereum ETFs are missing out on.

And the asset managers of these ether ETFs, they include familiar names like Fidelity, Grayscale, Ishares. What are the top things investors should consider when thinking about which ETF they should specifically invest in?

Yeah, well, I mean, first of all, invest with the asset managers you're familiar with. Um, in in a lot of ways that makes sense. Um, and there's a couple different ways to break out the the uh Ethereum ETFs and that's, you know, number one cost. Uh, almost all of them are 25 basis points or lower. And so there's not a meaningful difference in the cost for, um, eight of the nine ETFs. However, Grayscale Ethereum Trust, uh, converted from an over-the-counter trust or off-exchange trust, um, and and into an ETF today and kept its two and a half percent fee. So that's meaningfully different. If you are not a current holder, I would not buy that one. The rest are are probably safe. You should also think about the the trading costs associated with buying and selling. Um, you think about big bid ask spreads, the ability to to trade in and out quickly. Um, Ishares, Fidelity have become the trading centers of Spot Bitcoin ETFs. Um, so I would expect something similar to take place, uh, with Spot Ethereum as well. And you though the third thing you can consider is, you know, the crypto ethos. If you're if you're a true believer in crypto, um, companies like Bitwise and VanEck and and even Fidelity have spent more time giving back to the crypto community and building out their crypto, um, capabilities.

Brian Armour, Morningstar passive strategies research director and ETF investor editor. Thank you so much.

Thanks for having me.