Ethereum (ETH 0.03%) exchange-traded funds (ETFs) offer a convenient way to invest in the second-largest cryptocurrency by market capitalization in a manner similar to buying stocks. Much like the early days of Bitcoin ETFs, the landscape for Ethereum ETFs currently features futures-based options, while spot ETFs are still pending regulatory approval.
Cryptocurrency
In this article, we'll explore the available Ethereum ETFs, examining both the futures-based products currently accessible and the potential future of spot Ethereum ETFs. We'll also provide guidance on how to invest in these ETFs, offering insights into their structure, the benefits they offer, and considerations for investors looking to add Ethereum exposure to their investment portfolios.
What is it?
What is an Ethereum ETF?
The easiest way to understand Ethereum ETFs is to break them down into two main components. Ethereum itself is a blockchain platform with its own cryptocurrency, Ether (ETH). It's widely used for its smart contract functionality, which enables automatic, decentralized agreements that execute when their conditions are met.
Ethereum (ETH)
An ETF is an open-ended investment fund that holds assets like stocks, commodities, bonds, or even cryptocurrencies. ETFs are unique because they trade on stock exchanges much like individual stocks, offering the liquidity and accessibility that typical mutual funds do not.
Combining these, an Ethereum ETF is a type of investment fund that either holds Ethereum directly or invests in related derivatives like Ethereum futures contracts. This setup allows investors to gain exposure to Ethereum's market movements without buying and holding the actual cryptocurrency through a crypto exchange or dealing with the complexities of digital wallet security.
Essentially, when you buy shares of an Ethereum-based ETF, you're indirectly investing in Ethereum's performance with all the trading ease of traditional stocks.
Holdings
What do Ethereum ETFs hold?
Due to regulatory constraints, U.S. Ethereum ETFs are currently unable to hold Ethereum directly. Instead, these ETFs gain exposure to Ethereum through Ethereum futures contracts traded on the Chicago Mercantile Exchange (CME). These futures allow investors to speculate on the future price of Ethereum without the challenges -- such as security and custody -- of managing actual cryptocurrencies.
Since these futures are based on Ethereum's anticipated future price, they provide a method for investors to gain indirect exposure to Ethereum's price dynamics. Due to the nature of futures trading, which requires a margin, it is common for Ethereum ETFs to maintain significant holdings in cash or cash equivalents.
Low-risk assets, like money market funds, commercial paper, or Treasury bills, are often used as collateral for these trades. This setup ensures that the ETF can meet potential margin calls during periods of high volatility, thereby securing the leveraged positions taken on futures contracts.
What is Ethereum?
What is Ethereum?
Ethereum, launched in 2013 by Vitalik Buterin, is a comprehensive decentralized finance (DeFi) platform for decentralized applications (dApps) and smart contracts that run autonomously without a central authority. Ether is Ethereum's native cryptocurrency and is essential for operating dApps and executing smart contracts.
It serves as "gas," paying for the computational resources needed to execute operations and giving Ethereum its value. Ether trades on various cryptocurrency exchanges and is used both as an investment and a utility token. In September 2022, Ethereum underwent a major update, transitioning from a proof-of-work (PoW) to a proof-of-stake (PoS) system.
This shift significantly reduced the platform's energy consumption by changing how transactions are verified and blocks are added to the blockchain. Instead of miners solving puzzles, validators now stake Ether to earn the right to validate transactions and yield, enhancing Ethereum's sustainability and scalability.
Spot ETFs
Spot Ethereum ETF approval
While Canadian securities regulators have allowed spot Ethereum and other cryptocurrency ETFs to trade since April 2021, the U.S. Securities and Exchange Commission (SEC) has been slower to adopt similar measures. This landscape shifted significantly on May 23, 2024, when the SEC finally greenlit spot Ethereum ETFs.
However, these ETFs have not yet started trading in the market since the SEC still needs to approve the individual prospectuses submitted by ETF issuers aiming to launch these products. SEC Chair Gary Gensler has suggested that the process should be completed by the end of summer, although no specific timeline has been confirmed.
Once these approvals are in place, though, spot Ethereum ETFs will be allowed to begin trading on exchanges.
How to buy
How to invest in Ethereum ETFs
Investing in Ethereum ETFs is straightforward and follows the same procedure as trading any other ETF or stock. Here's a step-by-step guide to help you get started:
- Figure out your position size: Decide how much of your portfolio you want to allocate to Ethereum ETFs in terms of dollar value. Consider whether this investment fits with your overall risk tolerance and investment strategy versus regular stocks.
- Pick the right ETF: In the next section, we've provided a table of the major Ethereum ETFs currently available. Choose the one that best meets your needs based on factors like fees, liquidity, and past performance.
- Search the ETF on your brokerage: Locate the ETF by typing its full name or ticker symbol into your brokerage's search function. Make sure you select the option for "shares" or "equity" to ensure you are purchasing the ETF itself and not options based on it.
- Enter an order: Specify the number of shares you wish to buy. You can place a market order, which executes the trade at the next available price, or a limit order, which sets a maximum price you are willing to pay and executes only if the share price meets or falls below this threshold.
- Finishing up: If your order is successful, your brokerage account will reflect the purchase, with the ETF shares added and the corresponding amount of cash deducted.
Top three
Top three Ethereum ETFs
Here's an overview of the largest Ethereum ETFs on the market in terms of assets under management (AUM):
| Fund Name | Ticker Symbol | Net Expense Ratio |
|---|---|---|
| ProShares Ether Strategy ETF | (NYSEMKT:EETH) | 0.95% |
| VanEck Ethereum Strategy ETF | (NYSEMKT:EFUT) | 0.66% |
| Bitwise Bitcoin and Ether Equal Weight Strategy ETF | (NYSEMKT:BTOP) | 0.85% |
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Outlook
An outlook for Ethereum ETFs
Currently, investors can trade Ethereum futures ETFs, and with the recent SEC approval, spot Ethereum ETFs are expected to hit the market soon. The ETFs offer the convenience of trading through a regular brokerage account, eliminating the need for a crypto exchange or self-custody of digital assets.
However, it's important to note that these ETFs incur expense ratios and do not offer the 24/7 trading capability that direct investments in the cryptocurrency sector provide. Looking ahead, much like Bitcoin ETFs, which have attracted significant investor interest and led to new price highs for Bitcoin, Ethereum ETFs may similarly benefit from substantial inflows and expanded interest from retail investors.
FAQ
Investing in Ethereum ETFs FAQ
Which Ethereum ETF is best?
There's no universal answer, but the VanEck Ethereum Strategy ETF (NYSEMKT:EFUT) is a great candidate with a lower 0.66% expense ratio.
Is there an Ethereum ETF in the U.S.?
U.S. investors can currently buy Ethereum futures ETFs. Spot Ethereum ETFs, which were recently approved, are still awaiting launch.
How to get Ethereum ETFs?
You can buy shares of Ethereum futures ETFs via most brokerages. Spot Ethereum ETFs are still unavailable.
Is there an Ethereum spot ETF?
Spot Ethereum ETFs are available on Canadian exchanges, denominated in both Canadian and U.S. dollars. U.S.-listed spot Ethereum ETFs are still unavailable, although they have received regulatory approval.
