Michelle Legge
By Michelle LeggeHead of Crypto Tax Education
Updated Jun 27, 2024
This article has been fact checked and reviewed as per our editorial policy.

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.

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:

IssuerETF NameType
BitwiseBitwise Ethereum Strategy ETFFutures
VanEckVanEck Ethereum Strategy ETFFutures
ValkyrieValkyrie Bitcoin and Ether Strategy ETFFutures
ProSharesProShares Ether Strategy ETFFutures
Ark InvestArk 21 Shares Ethereum ETFSpot
GrayscaleGrayscale Ethereum Trust ConversionSpot
BlackRockiShares Ethereum TrustSpot

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. 

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How do Ethereum ETFs function?
Why choose an Ethereum ETF over owning actual Ethereum?
How to buy an Ethereum ETF?
Has an Ethereum ETF been approved?
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