The Securities and Exchange Commission approved the first US-listed ETFs to track Bitcoin in January 2024, which marked a turning point for the world's largest and most popular cryptocurrency by market cap and the broader industry, showing hesitance about approving similar funds for Ethereum. Nonetheless, a surprise move came in May this year when the financial markets watchdog allowed Nasdaq and the New York Stock Exchange to list ETFs holding Ethereum. As of August 2024, there have been countless applications for spot Ethereum ETFs, the approval of which is a highly anticipated development in the cryptocurrency market.
Up until now, investors could only acquire Ethereum directly through cryptocurrency exchanges. The dollar is inversely correlated with the prices of crypto assets, which basically means that in periods of dollar strength, cryptocurrency prices tend to decline, and the other way around. Please remember the Ethereum price USD when selecting a platform for purchasing and selling cryptocurrency. That being said, you can choose a cryptocurrency ETF, which requires no need to understand how self-custody works, offering a simpler exposure to the market. It's up to you to make the decision.
Spot ETFs Offer a Way to Invest in Ethereum without Direct Ownership
The SEC approved the listing and trading of several financial products, including the Grayscale Ethereum Trust, the iShares Ethereum Trust, the Bitwise Ethereum ETF, and the VanEck Ethereum Trust, to name a few. Between the rise of spot Ethereum ETFs and legislative progress in Congress, the regulatory outlook is very promising, with opportunities for financial institutions. A spot Ethereum ETF is an investment vehicle that tracks the underlying performance of Ethereum, namely its current price. It is traded on a traditional stock exchange, ensuring compliance with legal standards. Reputable custodians manage storage to mitigate risks like hacking or loss.
For individual investors, it's the easiest way to gain exposure to Ethereum, but you should approach cryptocurrency investing with a long-term perspective, buying and holding indefinitely. To be more precise, it's a good idea to abandon schemes promising instant wealth if you want a good return on the investment. If you're in and out of trades every day or every week, you must pay commissions to brokers for making transactions, which can eat your profits. Rather than trying to determine future market performance, invest when you have the available funds and hold onto your investments for extended periods.
Those Who Buy Spot Ethereum ETFs Will Miss Out on Staking Rewards
You can earn rewards by simply holding Ethereum—all you have to do is lock your crypto assets to support the operations of the blockchain. Ethereum uses a consensus mechanism called Proof of Stake to verify transactions and create new blocks, where validators must deposit a significant monetary amount onto the network, which acts as a guarantee for the legitimacy of new transactions. If you invest in a spot Ethereum ETF, you won't be able to take advantage of staking rewards that can generate passive income. Issuers were compelled to exclude staking from their proposals.
While staking is an important feature of Ethereum's Proof of Work, the financial markets watchdog views it as an unregistered offering that has very few protections and carries risks. You may earn higher returns by staking your Ethereum directly on a cryptocurrency exchange. In a recent interview, SEC Commissioner Hester Peirce said that spot Ethereum ETFs may be able to stake in the future, which means the issue is open for reconsideration. According to Gary Gensler, the head of the SEC, the returns token holders see from staking are securities and must be registered under the law.
Will Investors Sell Spot Bitcoin ETFs and Buy Spot Ethereum ETFs Instead?
The spot Bitcoin ETFs that debuted at the beginning of this year have exceeded expectations regarding flows and assets, attracting roughly $4.7 billion worth of investment inflow post-Trump's election win. Attention must be paid to the fact that investors' enthusiasm is tempered somewhat, which means it's unlikely they'll abandon spot Bitcoin ETFs in favor of spot Ethereum ETFs. Regulatory uncertainty, notably around the SEC's stance on inflation, leads people to be cautious, and with discounts nearly gone, some investors are sold off. Recognizing the complex dynamics of investor preferences and fee structures in the evolving ETF market is necessary.
Let's not forget that Bitcoin and Ethereum have different features and applications. Ethereum isn't just a digital currency but a decentralized blockchain-based platform that securely executes and verifies application code, referred to as smart contracts. Decentralized applications use one or more smart contracts to operate. Though it doesn't have a limited supply like Bitcoin, Ethereum draws in traders and investors who are curious about its robust capabilities, growth, and adoption. Until now, spot Ethereum ETFs have amassed $135.9 million in net inflows.
Wrapping It Up
Ethereum, the smart contract blockchain that supports many different use cases, is often criticized for not having a clear narrative, even if its multi-narrative vibe is a feature, not a bug, underpinning a significant portion of the Web3 movement. US regulators have finally given the green light for spot Ethereum ETFs, therefore making it possible for those interested to access the second-largest cryptocurrency by market cap after Bitcoin via easy-to-trade vehicles. Approval remained uncertain until recently. Unlike futures ETFs, spot ETFs don't gamble on Ethereum's future value through derivative contracts.
You can incorporate cryptocurrency into your portfolio as an alternative investment while maintaining an appropriate risk profile based on your financial situation, specifically what you own and what you owe. ETFs can be purchased via most online brokerages that provide traditional investments like stocks and bonds. Nevertheless, remember that the funds don't stake in the Ethereum they invest in, which deviates from the initial offering concession issuers were forced to make.
While these investment vehicles are programmed to monitor the asset's underlying price, minor variations and errors can occur. Institutional investors may acquire large quantities of Ethereum, which results in centralized control. What do you think?
