An In-Depth Guide to Ethereum Spot ETFs
Abstract
As the second-largest digital asset by market capitalization, Ethereum received approval from the SEC for an ETF issuance in May and officially launched on the New York Stock Exchange and other trading platforms in July.
Nine Ethereum ETFs have been listed and traded since July 23, including ETHE by Grayscale, ETHA by BlackRock, etc.
This report aims to help investors gain a clearer understanding of Ethereum spot ETFs, and it is divided into three parts.
Access the full report in PDF format by downloading it from here.
ETF - From Bitcoin to Ethereum
Crypto spot ETFs are funds that can be traded on regulated exchanges like NYSE or NASDAQ. They enable investors to track the price of target cryptocurrency and benefit from it without the need to directly purchase or hold it. Unlike traditional crypto investments, which require using crypto exchanges, crypto ETFs simplify the investment process and eliminate the need for secure storage of coins.
Currently, the U.S. market only has two cryptocurrency spot ETFs: Bitcoin and Ethereum.
Bitcoin ETFs Market Landscape
As of July 10, 2024, there are more than 35 Bitcoin spot ETFs available for trading in the U.S. market, with a total assets under management (AUM) of $50.29 billion. The average expense ratio is 1.08%.
The largest Bitcoin ETF is the iShares Bitcoin Trust (IBIT), with an asset size of $18.28 billion. Over the past year, the best-performing Bitcoin ETF has been GBTC, with a return of 164.42%.
Since the approval of Bitcoin ETFs, Grayscale's GBTC product has seen a continuous decline in AUM due to high fees and various factors, such as many early participants having already taken profits. As of August 2024, GBTC has experienced a cumulative net outflow of $19.045 billion, while all other spot ETFs have seen steady inflows during the same period.
We have previously discussed the potential impact of Bitcoin ETFs on centralized exchanges, and we have also emphasized that Bitcoin ETFs are currently one of the few compliant channels for traditional financial institutions to allocate digital assets. For more insights on Bitcoin ETFs, please refer to our 'Unraveling BTC ETF: A Detailed Guide'
Comparison of Ethereum ETFs and Bitcoin ETFs
Similar to the Bitcoin network, Ethereum is also a decentralized blockchain network. In addition to performing basic functions like Bitcoin’s transaction capabilities, Ethereum leverages smart contracts to run code, enabling people to build applications and organizations.
Bitcoin uses a Proof of Work (PoW) consensus mechanism, which requires miners to consume significant amounts of electricity to maintain network security. In contrast, the current Ethereum network has adopted a more energy-efficient Proof of Stake (PoS) consensus mechanism, which ensures the network's decentralization and security through staking.
The table below summarizes the key on-chain data differences between Bitcoin and Ethereum, aiming to help investors interested in Ethereum ETFs gain a deeper understanding of the underlying asset.
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The Potential of Ethereum
Assuming that 70% of the market share for all blockchain application scenarios occurs on Ethereum and its sidechains, and that Ethereum charges users a fee of 5% to 10% for applications, VanEck predicts that, when factoring in Ethereum's MEV profits, staking yields, and network transaction fees, the future annual profit for Ethereum could reach $78.5 million. In a bullish scenario, this figure could exceed $360 million.
Although it currently cannot challenge the authority of the traditional financial system, the trend of diverse adoption is a key reason why we believe Ethereum’s future potential is remarkable.
The Development History of Ethereum ETFs
The first significant progress for Ethereum with the SEC occurred in October 2023, when asset management company Valkyrie Funds included Ethereum (ETH) assets in its already issued Bitcoin futures ETF, renaming it the Valkyrie Bitcoin and Ether Strategy ETF (BTF). This marked the first time that Ethereum assets were included in the ETF market.
The successful listing of Ethereum spot ETFs, aside from external political factors, can largely be attributed to the persistent efforts of asset management company Grayscale in pushing for the regulatory approval of crypto assets. After winning its case against the SEC in 2022, Grayscale successfully launched the first crypto asset ETF, GBTC, in 2024. Four months later, Ethereum spot ETFs were quickly approved.
Market Landscape of Ethereum Spot ETF
As of August 12, 2024, there are a total of nine Ethereum spot ETFs in the U.S. market, with detailed information provided in the table below.
The largest of these funds is Grayscale’s ETHE, which was introduced earlier and has a market value exceeding $4.9 billion, accounting for 68% of the entire market. ETHE was originally a trust fund that could only be traded on the OTC market.
Explore detailed insights on each Ethereum ETFs by downloading our comprehensive report in PDF format below.
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