Just a few months ago, it appeared very impossible that US regulators would allow the first US exchange-traded funds to invest directly in Ether, the second-largest cryptocurrency in the world.
The US Securities and Exchange Commission approved the applications for eight issuers, including Fidelity Investments, Invesco Ltd., and BlackRock Inc. A large number of them participated in the January spot Bitcoin ETF launch.
While supporters of the industry have rejoiced over the milestone, they do not anticipate blockbuster flows akin to those of the Bitcoin fund cohort. The combined Ether funds would see inflows of between $4.7 billion and $5.4 billion in the six months following their launch, according to estimates made by Citigroup strategists in a note. In contrast, within less than a week of trading, BlackRock’s Bitcoin ETF achieved its own milestone of crossing the $1 billion mark.
What is ether?
The native token of Ethereum, the most widely used blockchain in business, is called ether. Decentralized ledgers, which show ownership and record transactions, are the primary innovation in the cryptocurrency space. By briefly making their tokens available to the Ethereum network for use in assisting with transaction validation—a process known as staking—investors might generate passive revenue. Technically, if you stake through an ETF rather than directly, it may be considerably easier to collect that dividend.
Why was the approval granted?
The loosening of the US regulatory environment for the digital asset industry is shown by the introduction of spot Ether ETFs. The items have been made possible in part by a landmark legal victory for the sector last year.
Further clarification regarding Ether’s standing in the SEC’s perspective is provided by the decision. The agency had previously taken action to stop the growth of cryptocurrencies on the grounds that many of their offerings qualified as securities and should be governed similarly to stocks, bonds, and a variety of other trading assets.
Although SEC Chair Gary Gensler has maintained that a large number of digital assets are unregistered securities, he has declined to state whether Ether is among them. Only one cryptocurrency—Bitcoin, the largest digital asset in the world—has received a firm declaration from Gensler that it is not a security. He sees it as a commodity.
The SEC believed that Ether’s staking mechanism distinguished it from Bitcoin. Many regulators believe that investing in a common pool and receiving a return qualifies as a security. This indicated that it was thought that the applications for spot-Ether ETFs that suggested allowing staking would not likely be approved.
However, issuers later declared they would not participate in derivatives related to Ether and promised to keep the Ether they purchased from staking programs. These kind of concessions probably played a part in the approval, albeit the SEC has not said what caused it.
What should we anticipate?
The strategists at Bloomberg Intelligence, James Seyffart and Eric Balchunas, predicted that BlackRock and Fidelity will draw in the most volume and assets, however they also predicted that the flows into Ether ETFs would account for about 20% of the flows into Bitcoin ETFs over the next year. This corresponds to $5–$6 billion in Ether ETF inflows.
Similar funds have performed better outside of the US in countries like Switzerland, Hong Kong, Canada, and Sweden, where spot ETFs for Bitcoin and ether have just recently opened. The fact that ETFs in other jurisdictions allow staking could be a major factor in the discrepancy.
Why do spot-Ether ETFs matter?
Because ETFs make investing in stocks, bonds, commodities, currencies, and real estate so simple, they have become a very popular option for Americans. This is also true in the case of cryptocurrencies: Investors can obtain the same exposure by purchasing shares of the corresponding ETF on a public market, bypassing the complicated process of purchasing cryptocurrencies directly from the blockchain.
Unlike previously available products that invested in Bitcoin futures, which are derivative contracts to purchase or sell an asset at a preset price at a later date, the introduction of Bitcoin ETFs in January was hailed as a breakthrough because they held actual Bitcoin. Since the almost dozen spot-Bitcoin ETFs have drawn about $17 billion in net inflows since their January launch, it stands to reason that the same would probably be true for spot-Ether ETFs, and there’s every reason to believe they would be popular among retail investors.
After spot-Bitcoin ETFs were permitted, what happened?
Based on important trading metrics including flows and trading volume, the introduction of spot-Bitcoin ETFs was deemed a great success. Bitcoin’s price shot up an all-time high. Top of the leaderboard are the Fidelity Wise Origin Bitcoin Fund (FBTC) and BlackRock’s iShares Bitcoin Trust (IBIT), both of which surpassed the $1 billion mark in less than five days. According to Bloomberg Intelligence, these two funds are the only ones in the whole ETF world to have drawn in excess of $3 billion in the first 20 trading days.
Who’s buying these Bitcoin ETFs?
Hedge funds, pension funds, and banks have all added capital to spot-Bitcoin exchange-traded funds (ETFs), although the majority of purchases are by retail crowd, according to the most recent 13F reports submitted to the SEC. The most well-known purchasers were hedge funds including Steven Cohen’s Point72 Asset Management, Elliott Investment Management, and Millennium Management, which together held approximately $2 billion worth of shares in at least four Bitcoin ETFs.
