The Ethereum spot ETF is about to be listed. Here's everything you need to know

Original Title: “Ethereum ETFs are coming --- Here's what you need to know”

Source: Cointelegraph, Fortune

Compiled by: Felix, PANews

After years of regulatory hurdles and countless revisions of registration documents, Ethereum spot ETFs are finally entering the market. The Chicago Board Options Exchange (Cboe) recently announced that five Ethereum spot ETFs will be listed on July 23, including the Fidelity Ethereum Fund, Franklin Ethereum ETF, Invesco Galaxy Ethereum ETF, VanEck Ethereum ETF, and 21Shares Core Ethereum ETF.

The other four Ethereum spot ETFs will trade on Nasdaq or the New York Stock Exchange (NYSE) Arca. These exchanges have not yet released official announcements, but they are expected to list soon.

The highly anticipated listings mark a decisive moment for the crypto market and an opportunity for millions of institutional and retail investors in the U.S. These ETFs follow closely behind 11 Bitcoin spot ETFs. Since their launch in January, Bitcoin spot ETFs have accumulated over $54 billion in assets under management, soaring 47% this year. Here’s everything you need to know about Ethereum spot ETFs.

What is an 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 U.S. SEC has reservations about this classification.

ETFs first entered the market in 1993. These funds pool a basket of securities, such as various energy stocks, and their prices are aligned with the index they track. They are listed on exchanges and can be traded during market hours, thus functioning similarly to stocks.

Spot Ethereum ETFs will track the spot (or current) price of ETH. These products allow investors to gain exposure to cryptocurrency without needing to own a crypto wallet. These ETFs will be established in the form of a trust, meaning investors will own shares of the ETH held in the trust.

Who issues them, and what are the fees?

Currently, eight asset management companies plan to launch Ethereum ETFs, and fee information for nine Ethereum spot ETFs has been fully disclosed. Details are as follows:

In terms of underlying mechanisms, these funds are almost identical. Each ETF is initiated by a reputable institution, with qualified custodians holding the spot ETH, relying on a core team of professional market makers to create and redeem shares. The investor protection standards for these funds are the same, including insurance against broker bankruptcy and cybersecurity risks.

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

Most (but not all) Ethereum ETFs temporarily waive or reduce fees to attract investors. However, Greyscale Ethereum Trust and Invesco Galaxy Ethereum ETF (QETH) are exceptions.

Where can you buy them?

In short: almost all mainstream brokerage platforms. Each ETH spot ETF listed in the last week of July has received regulatory approval to trade on at least one major U.S. exchange, specifically Nasdaq, NYSE Arca, or Cboe BZX.

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

Once the ETH ETFs are listed on public exchanges, all well-known brokerages and other institutions are expected to facilitate trading.

Will Spot Ethereum ETFs offer staking services?

Perhaps, but not in the short term.

Staking involves depositing ETH into validator nodes on the Ethereum Beacon Chain. Staked ETH can earn a proportion of network fees and other rewards, but there is also the risk of being "slashed"—or having the staked collateral confiscated—if the validator misbehaves or fails.

Staking is attractive because it can significantly enhance returns. According to data from StakingRewards.com, as of July 19, the annualized yield is about 3.7%.

Earlier this year, several issuers, including Fidelity, BlackRock, and Franklin Templeton, sought regulatory approval to add staking features to Ethereum spot ETFs. The SEC rejected these requests.

According to several anonymous sources involved in the negotiations, the core issue is liquidity. Staked ETH typically takes several days to withdraw from the Beacon chain. This poses a problem for issuers, as they need to redeem ETF shares promptly upon request.

Insiders indicate that issuers are still exploring ways to incorporate staking features into existing Ethereum spot ETFs—possibly by maintaining a "buffer" of liquid spot ETH—but a viable plan is still months away. Currently, ETH ETFs cannot offer staking.

Why buy Ethereum ETFs?

Bitcoin and Ether represent units of ownership in their underlying blockchains, thus representing their value. Beyond that, there are significant differences between them.

Bitcoin may serve as a long-term hedge against inflation, while Ethereum is closer to a technology investment. Vetle Lunde, a senior analyst at K33 Research, stated in an interview that the main premise of blockchain is "to eliminate intermediaries, enabling financial services like trading and lending to operate 24/7, as well as tokenization, digital collectibles, and digital identity."

While the crypto market is currently closely correlated, this may not always be the case. Therefore, Ethereum spot ETFs allow investors to meet diversification needs.

Can its popularity rival that of spot Bitcoin ETFs?

Bloomberg ETF analyst James Seyffart stated that demand for Ethereum spot ETFs will be about 20% of that for spot Bitcoin ETFs. This is because ETH's market capitalization is roughly one-third that of BTC. Additionally, these ETFs lack a key advantage of holding ETH: investors cannot stake it, and thus cannot generate yield. However, James Seyffart noted that even if the scale is smaller, by historical ETF issuance standards, they will still be "very successful." Similarly, K33 Research predicts that inflows will reach $4 billion in the first six months of trading, accounting for a quarter of Bitcoin spot ETF inflows.

Leah Wald, CEO and President of Cyberpunk Holdings, stated in an interview that the key to judging success is to assess performance six months after trading begins, rather than just evaluating the "start date" and the initial weeks. She pointed out that these products are launching in the summer, which is considered a "slow season" for trading. Furthermore, success should also be judged by trading volume and spreads, not just inflows. Because the health of these indicators suggests future growth in 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 hedge funds, pension funds, banks, and endowment 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 Bitcoin ETFs shows that over 80% of total AUM comes from non-professional investors.

How will ETFs affect the crypto market?

If K33's prediction of $4 billion in inflows within six months is accurate, it would mean that by the end of this year, 1% of the circulating ETH will be held by ETFs, based on current prices. Lunde stated that this holding "will be beneficial" for boosting ETH prices in the second half of the year.

Historical experience indicates that capital inflows will also benefit the overall market. According to K33 data, new capital flowing into Bitcoin through ETFs will increase the crypto market cap by 46% in 2024. Lunde expects these products "could further expand the overall market." Additionally, Bitcoin ETF investors "have proven to be able to withstand volatility, with stable capital flows even during deep corrections," indicating that new long-term investors will be interested in ETFs.

Finally, the involvement of traditional financial giant BlackRock in issuing these ETFs indicates that the company is deepening its engagement in the crypto space. This brings a "solid and much-needed endorsement" to the crypto industry.