ETH Exchange Traded Fund (ETF) is about to be listed, a comprehensive understanding of what you need to know

Source: Cointelegraph, Fortune

Editor: Felix, PANews

After years of regulatory obstacles and countless revisions to registration documents, the ETH Spot ETF has finally entered the market. The Chicago Options Exchange (Cboe) recently announced that five ETH Spot ETFs, including Fidelity Ether Fund, Franklin Ether ETF, Invesco Galaxy Ethereum ETF, VanEck Ether ETF, and 21Shares Core Ether ETF, will be listed on the exchange on July 23.

Four other ETH spot ETFs will be traded on Nasdaq or the New York Stock Exchange (NYSE) Arca. These exchanges have not yet announced officially, but they are expected to be listed in the near future.

The highly anticipated listing is a decisive moment for the encryption market, and an opportunity for millions of American institutions and retail investors. These ETFs follow in the footsteps of 11 BTCSpotETFs. Since the launch of BTCSpotETF in January this year, the assets managed by BTC have accumulated to more than 54 billion US dollars, soaring 47% this year. Here is all the information you need to know about the ETHSquare SpotETF.

What is Ethereum Spot ETF?

ETH is the native Cryptocurrency of the Ethereum blockchain. Legally, ETH is considered a commodity, and the corresponding ETF would be a security, but the US SEC has a reserved attitude towards this determination.

ETF first entered the market in 1993. These funds gather a basket of securities, such as several different energy stocks, whose prices track the index they are based on. They are listed on the exchange and can be traded during market hours, so they operate similar to stocks.

Spot ETH ETF will track the Spot (or current) price of ETH. These products allow investors to access Cryptocurrency without owning an encryption wallet. These ETFs will be established in the form of a trustee trust, which means that investors will have shares in the ETH held by the trust.

Who is responsible for issuance, and how much does it cost?

Currently, eight asset management companies plan to launch ETH ETFs, and the fee information for nine ETH spot ETFs has been fully disclosed. The details are as shown in the following figure:

In terms of underlying mechanisms, these funds are almost identical. Each ETF is launched by a reputable institutional party, holds spot ETH by a qualified custodian, and relies on a core team of professional market makers to create and redeem shares. The investment protection standards of these funds are the same, including insurance against broker bankruptcy and cybersecurity risks.

For most investors, the determining factor is the cost. Eight out of nine ETFs have management fees ranging from 0.15% to 0.25%. The only exception is Grayscale Ethereum Trust (ETHE), which charges a 2.5% management fee.

Most (but not all) ETH-based ETFs temporarily exempt or drop fees to attract investors. However, Greyscale Ethereum Trust and Invesco Galaxy Ethereum ETF (QETH) are exceptions.

Where can I buy it?

In short, almost every mainstream brokerage platform. Every ETH spot ETF listed in the last week of July has been approved by regulatory agencies and can be traded on at least one major exchange in the United States, especially Nasdaq, New York Stock Exchange (NYSE) Arca, or Chicago Options Exchange (Cboe) BZX.

Ordinary investors do not trade directly on these exchanges. Instead, they rely on intermediary platforms (such as Fidelity, E*TRADE, Robinhood, Charles Schwab, and TD Ameritrade, etc.) as intermediaries.

Once ETH ETF is listed on the public exchange, it is expected that all well-known brokers and other institutions will be able to trade.

Will SpotETH Ethereum ETF provide stake services?

Perhaps, but not in the short term.

Stake involves depositing ETH into validators’ nodes on the Ethereum beacon chain. The staked ETH can earn a certain proportion of network fees and other rewards, but if the validators behave improperly or fail, it may also be ‘slashed’ - or confiscated as collateral.

The attractiveness of stake lies in its ability to significantly increase returns. According to StakingRewards.com data, as of July 19, the Annual Percentage Rate is approximately 3.7%.

Earlier this year, several issuers including Fidelity, BlackRock, and Franklin Templeton sought regulatory approval to add stake functionality in ETH spot ETFs. The SEC rejected these requests.

According to several anonymous sources involved in the negotiations, the ultimate issue is Liquidity. ETH staked usually takes several days to withdraw from the Beacon chain. This is a problem for issuers because they need to redeem ETF shares in a timely manner as required.

Insiders say the issuer is still exploring ways to add stake functionality to existing ETH spot ETFs, possibly by maintaining the ‘buffer’ of Liquidity spot ETH, but viable plans will take at least several months. Currently, ETH ETFs cannot stake.

Why Buy ETH ETF?

BTC and Ether represent the ownership units of the underlying blockchain, and thus also represent their value. In addition, there are significant differences between them.

BTC may be a tool for long-term Hedging against inflation, while ETH is closer to a technical investment. Vetle Lunde, senior analyst at K33 Research, said in an interview that the main premise of blockchain is to “eliminate intermediary institutions, achieve 24/7 operation of Financial Services such as trading and lending, as well as tokenization, digital collectibles, and digital identity.”

While the current encryption market is closely related, the situation may not always be so. Therefore, the ETH Spot ETF allows investors to meet diversified investment needs.

Can popularity match Spot BTC ETF?

Bloomberg ETF analyst James Seyffart said demand for an ETH Spot ETF would be 20% of a Spot BTC ETF due to ETH’s market capitalization being roughly one third that of BTC. Additionally, these ETFs lack a key advantage of holding ETH: investors cannot stake and earn yield. But Seyffart said even with smaller scale, they would be “very successful” measured against past ETF issuance standards. Similarly, K33 Research predicts inflows of $4 billion in the first six months of trading, a quarter of the BTC Spot ETF.

Cyberpunk Holdings CEO and President Leah Wald said in an interview that the key to judging success is to evaluate its performance six months after the transaction, rather than just evaluating the ‘start date’ and the initial few weeks. She pointed out that these products were listed in the summer, which is considered a ‘slow season’ for trading. In addition, success should also be judged by volume and spreads, not just inflows. Because the health of these indicators foreshadows the rise of future Assets Under Management (AUM), healthy indicators will make investors feel safe allocating funds to these new securities.

Who will invest in them?

Institutional investors, such as Hedging funds, pension funds, banks, and charitable funds. Retail investors can also participate through direct purchases or through portfolio allocations by wealth advisors. The latter may dominate in the first six months of trading, as data from Spot BTC ETF shows that over 80% of total AUM comes from non-professional investors.

How will ETF affect the encryption market?

If K33’s prediction of an inflow of 4 billion US dollars within 6 months is accurate, based on the current price, it means that 1% of the circulating ETH will be held by ETFs by the end of this year. Lunde said that this holding will be “beneficial” for boosting the price of ETH in the second half of the year.

Historical experience shows that capital inflows will also affect the overall market of Favourable Information. According to K33 data, new capital inflows into BTC through ETFs will increase the market capitalization of encryptionMarket Cap by 46% in 2024. Lunde expects that these products “can further expand the overall market.” In addition, BTCETF investors “have been proven to be able to handle Fluctuation calmly, and even during Depth adjustments, capital flows are stable”, indicating that new investors committed to long-term investment will be interested in ETFs.

Finally, the participation of TradFi giant BlackRock in the issuance indicates that the company is delving into the encryption field. This brings a ‘solid and much-needed endorsement’ to the encryption industry.

Related reading: US ETH spot ETF listing soon: enter first or watch calmly?