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Spot Ether ETFs Set to Debut on Tuesday: What It Means for the Ethereum Blockchain
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ETF Spot Ether Applications
Grayscale Ethereum (ETH) Mini Trust
Grayscale Ethereum Trust (ETHE)
Ethereum Bitwise (ETHW)
VanEck Ethereum (ETHV)
21Core Ethereum (CETH) shares
Invesco Galaxy Ethereum (QETH)
Ethereum Fidelity (FETH)
Franklin’s Ethereum (EZET)
Trust in Ethereum (ETHA)
Like spot bitcoin ETFs that launched in JanuaryMost waive commissions initially, in many cases for up to a year.
By the standards of ETF launches, spot bitcoin ETFs have been successful: they recently hit a high $17 billion in net inflows year to date since their debut.
For a new asset class, this is a huge success.
However, with $1.3 trillion in total assets, bitcoin is roughly three times the value of ether, which has about $414 billion in assets. This may limit the initial appeal of ether ETFs.
Bitcoin prices have surged ahead of the launch of spot bitcoin ETFs. Ether has been a bit more choppy, up 50% in 2024, but most of the gains have come in the first three months of the year.
However, for Ethereum enthusiasts, the primary value of a spot Ether ETF is that it is a perfect vehicle to educate the public about Ethereum’s use cases, which are far broader than anything Bitcoin has to offer.
Ben Johnson, Morningstar’s head of client solutions and a veteran of ETF research, noted that while bitcoin is often touted as digital gold, “Ethereum is more like picks and shovels.”
“The first case is finite and could be a store of value, while the second is unfinished and is being used to build real-world applications,” he said.
Many investors have never been impressed by Bitcoin, mainly because the use case seems limited: it is purely a digital currency. But the Ethereum platform is different.
Both Bitcoin and Ethereum use blockchain, which is a decentralized, immutable ledger to record the history of transactions, but they serve very different purposes.
Bitcoin uses blockchain as its digital currency. Ethereum uses digital money just like bitcoin, but its blockchain has broader purposes. (Ether is the cryptocurrency used on the Ethereum network, but in practice the terms Ethereum and ether are often used interchangeably.)
Ethereum is a platform for creating smart contracts, which are self-executing programs that enforce a pre-existing contract or agreement. It can be as simple as “If I do this, you do that.” The key is that they execute automatically, run on the blockchain (the Ethereum network), and produce the same result every time they run. They also have a wide variety of applications.
The most common use is for decentralized finance, or “DeFi.” This is just a fancy term for using financial services on the blockchain. In theory, you could perform almost any banking service: users can send, lend, or borrow money, open a savings account, trade stocks or derivatives or other cryptocurrencies, get insurance. In theory, you could even do real estate transactions. Users can perform these functions using software called “decentralized apps.”
The use case goes beyond financial services. Users can play games. Companies could use it to track supply chains. It could even be used as a clearinghouse to settle stock trades.
Another application for Ethereum: stablecoins. These are cryptocurrencies whose value is pegged to another asset, usually the dollar. Because cryptocurrencies like bitcoin and ether are volatile, many DeFi applications rely on stablecoins for lending, borrowing, and trading.
The promise is a network of transactions that, in theory, could represent a much cheaper and faster way of doing business.
It’s unclear whether this latest development will open the floodgates for more crypto ETFs or whether the U.S. Securities and Exchange Commission will find a way to stem this potential surge of capital.
Anyone wishing to apply for other crypto ETFs would still have to demonstrate that the underlying market is not subject to manipulation, a key requirement for these funds to be approved.
But a lot could depend on the political climate.
In the past, for commodities, the SEC has traditionally required a regulated futures market to trade alongside the asset. Currently, this only exists for bitcoin and ether, so it would take time to develop futures markets for other crypto products.
“Under the current regime in Washington, this wouldn’t change,” Matt Hougan, Bitwise’s chief investment officer, told me. “But if there were a regime change in Washington, this could change.”
In any case, expect a lot of trading. “These new ETH ETFs are likely to be very heavily traded,” Morningstar’s Johnson told me. “I imagine if and when options on these ETFs become available, this will all go into overdrive… These ETFs really add a whole new wing to the cryptocurrency casino.”
For now, selling Ethereum as a new transaction platform is the main focus, and Ethereum enthusiasts have a strong argument: the platform is ultimately a technology investment.
“A lot of investors see bitcoin as digital gold, a store of value, while investors see ethereum more as a technology investment,” Bitwise CEO Hunter Horsley said on CNBC TV last night.
Note: Jan van Eck, CEO of VanEck; Ben Johnson of Morningstar; and David Mann, head of ETF products and capital markets at Franklin Templeton, will be on ETF Edge on Tuesday, July 23 at 1:10 p.m. ET. ETFEdge.cnbc.com.