Ethereum ETFs: What Are They and How Do They Work
Ethereum ETFs just got the green light from the SEC - but what exactly are Ethereum ETFs and how do you invest in them? Find out in our Ethereum ETF guide.
What is an Ethereum ETF?
An Ethereum ETF (Exchange-Traded Fund) is a type of investment fund that tracks the price of Ethereum, a popular cryptocurrency. This allows investors to buy and sell shares of the ETF on traditional stock exchanges, making it easier to invest in Ethereum without needing to directly purchase or manage crypto assets.
Ethereum ETFs offer a regulated and secure way to gain exposure to Ethereum's value, as they are subject to the same financial regulations as other conventional financial products. This provides a compliant and straightforward option for those looking to invest in cryptocurrency within the familiar framework of traditional financial markets.
What are the different types of Ethereum ETFs?
There are two kinds of ETFs - spot ETFs and futures ETFs. Spot ETFs far more common.
Spot Ethereum ETFs
Spot Ethereum ETFs directly hold the underlying asset. The value of the ETF reflects the overall value of the Ethereum it holds. As the price of Ethereum fluctuates, the value of the spot ETF generally follows suit, providing investors with a straightforward way to gain exposure to Ethereum's price movements.
Futures Ethereum ETFs
Futures Ethereum ETFs, on the other hand, do not hold Ethereum directly. Instead, these funds engage in futures contracts to gain exposure to Ethereum's price movements. These contracts are agreements to buy or sell Ethereum at a predetermined price at a specified time in the future, allowing investors to speculate on its future price without owning the asset itself.
Are Ethereum ETFs legal?
Yes, Ethereum ETFs are legal in the United States. The US Securities and Exchange Commission (SEC) has approved the sale of spot ETH ETFs. This approval came after the SEC combined proposals from the Nasdaq, NYSE, and CBOE exchanges to allow Ethereum Exchange-Traded Products (ETPs) and ETFs.
However, trading of these ETFs will not begin immediately. Issuers must first obtain SEC approval for individual ETF registration statements, which include specific investor disclosures. As such, only a limited number of investment platforms offer ETH ETFs so far.
The approval of spot Ether ETFs follows the earlier approval of Bitcoin ETFs and ETPs, marking a significant step for cryptocurrency investment products in regulated markets. Despite the SEC’s historically cautious approach to crypto, the approval has been welcomed as a positive development for the industry.
What are the advantages of Ethereum ETFs?
Ethereum ETFs offer unique benefits for investors, including:
Accessibility: Investors can trade Ethereum through standard brokerage accounts on stock exchanges.
Regulation: Benefit from the oversight and regulation present in traditional financial markets.
Diversification: Add a cryptocurrency asset class to diversify your investment portfolio.
Simplicity: Gain exposure to Ethereum's value without the need to manage and secure the actual digital coins.
Liquidity: Ethereum ETFs offer liquidity, making it easier to buy and sell shares on the stock market.
What are the risks of Ethereum ETFs?
As with all financial investments, there are risks to investing in Ethereum ETFs, including:
Market volatility: Ethereum is known for its significant price fluctuations, which can lead to substantial losses.
Regulatory changes: Future regulatory changes could impact the legality and operational aspects of Ethereum ETFs.
Counterparty risk: Dependence on the ETF provider to effectively manage and secure the underlying assets.
Tracking error: The ETF might not perfectly track the price of Ethereum due to management fees and other operational costs.
Read Next: What is Etherscan and How To Use It
Where can I invest in Ethereum ETFs?
There are a number of platforms both in the US and internationally offering both futures and spot Ethereum ETFs. Some of the most popular include:
| Issuer | ETF Name | Type |
|---|---|---|
| Bitwise | Bitwise Ethereum Strategy ETF | Futures |
| VanEck | VanEck Ethereum Strategy ETF | Futures |
| Valkyrie | Valkyrie Bitcoin and Ether Strategy ETF | Futures |
| ProShares | ProShares Ether Strategy ETF | Futures |
| Ark Invest | Ark 21 Shares Ethereum ETF | Spot |
| Grayscale | Grayscale Ethereum Trust Conversion | Spot |
| BlackRock | iShares Ethereum Trust | Spot |
Don’t forget the tax bill…
As with all financial investments, Ethereum ETFs come with a tax bill. We’ve got a dedicated guide on crypto ETF taxes, but in short, it’s likely that you’ll pay Capital Gains Tax on any gain from spot ETFs.
FAQs
How do Ethereum ETFs function?
Ethereum ETFs track the price of Ethereum, allowing investors to buy and sell shares on traditional stock exchanges. They offer a regulated and straightforward way to gain exposure to Ethereum's performance.
Why choose an Ethereum ETF over owning actual Ethereum?
Ethereum ETFs provide simplicity, liquidity, and regulatory advantages, making them an appealing option for investors who prefer not to manage digital assets directly. They offer a way to gain exposure to Ethereum without the complexities of handling and securing the cryptocurrency.
How to buy an Ethereum ETF?
The most straightforward way to buy an Ethereum ETF is through a reliable centralized exchange. Similar to buying other ETFs, you can:
Choose a brokerage: Select a reputable brokerage or trading platform that offers Ethereum ETFs.
Open an account: If you don’t already have one, open a brokerage account and complete any necessary verification processes.
Fund Your account: Deposit funds into your brokerage account.
Search for Ethereum ETF: Look up the Ethereum ETF on the platform using its ticker symbol.
Place an order: Decide how many shares you want to buy and place your order through the brokerage.
Has an Ethereum ETF been approved?
Yes, the Securities and Exchange Commission (SEC) has approved a rule change allowing exchanges to list spot Ethereum ETFs in the U.S. On May 23, 2024, the SEC granted this approval following the earlier approval for spot Bitcoin ETFs on January 10, 2024.
