An Ethereum ETF is expected to launch in 2024, following the recent Bitcoin ETF approvals. What are the steps to Ethereum ETF approval and what are the reasons it might not be approved at all?
This month, spot Bitcoin exchange-traded funds were finally approved in the US by the SEC. But this milestone raises an important question: when will spot Ethereum ETFs be approved?
As the second largest cryptocurrency by market cap, speculation that investors could soon be able to trade an asset on the stock market that directly represents Ethereum is drumming up significant excitement.
However, despite the US launch of spot Bitcoin ETFs, Ethereum could still face an uphill battle. Here’s why.
Will there be a spot Ethereum ETF?
Crypto proponents have long speculated that an Ethereum spot ETF will, at some point, be approved in the United States. As of late, many experts in the space seem to have turned their attention to when—rather than if—spot Ethereum ETFs will become available for everyday traders.
This appears especially likely thanks to the SEC approving spot Bitcoin ETFs in a recent ruling, as well as the fact that Ethereum futures ETFs have already been approved.
An ETF (or, exchange-traded fund) is a type of investment fund that invests in a certain asset—such as a commodity or group of stocks. Investors can then buy shares in these funds, giving investors exposure to their underlying assets. They can be traded on traditional stock markets, such as the New York Stock Exchange and Nasdaq.
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When it comes to crypto, ETFs offer an easy entry point for those outside of the Web3 world. They allow investors to benefit from the price movements of cryptocurrencies within a regulated framework that mirrors trading traditional stocks.
As a result, a spot Ethereum ETF could open up buying and selling Ethereum to a wider pool of everyday traders, as well as companies and other institutional investors such as pension funds.
What the SEC says about Ethereum ETFs
With the launch of Bitcoin ETFs this month, some proponents speculate that a spot Ethereum ETF is the logical next step. However, this sentiment has not been echoed by the Securities and Exchange Commission (SEC) itself.
Following the decision on Bitcoin ETFs, SEC Chair Gary Gensler said that Bitcoin’s approval will not set a precedent for exchange-traded products (ETPs) backed by other cryptocurrencies like Ethereum.
"Today’s Commission action is cabined to ETPs holding one non-security commodity, Bitcoin," said Gensler, in a statement published on the SEC’s website. “It should in no way signal the Commission’s willingness to approve listing standards for crypto asset securities.”
In spite of this statement, the popularity of Ethereum and the fact that Ethereum ETFs have been approved in nearby jurisdictions could suggest that we will eventually see a spot Ethereum ETF get the greenlight.
Dissenting voices within the SEC itself may also play a role in making this a reality, as some members hold a positive sentiment towards approving spot crypto ETFs. This was especially evident in a recent statement by Commissioner Hester Pierce.
“Perhaps the one silver lining here is now that we know that the Commission can execute a robust correlation analysis, perhaps the road to approving other spot crypto ETPs will not be as bumpy,” she wrote.
When will there be a spot Ethereum ETF?
Since the approval of the US’ first spot Bitcoin ETFs, experts have given divided opinions on when Ethereum will be given the same treatment by regulators.
Generally, what these experts agree on is that the key date to watch right now is May 23rd of this year. This date is the SEC’s final deadline to rule on a proposal for a spot Ethereum ETF by VanEck.
Meanwhile, earlier (more flexible) deadlines have continually been delayed by the SEC. Recently, this included the January 18 deadline for a spot ETF proposal by Fidelity, which was pushed back to March 5, and has a final deadline of August 3rd, 2024.
Opinions differ drastically, however, when it comes to speculating on how likely it is that spot Ethereum ETFs will be approved by this deadline.
According to Bloomberg ETF analyst Eric Balchunas, the chance of an Ethereum spot ETF being approved by May is as high as 70%.
However, JPMorgan is not as bullish. In a note to clients cited by CoinDesk, the firm expressed its skepticism that the SEC will give its approval by May of this year. Instead, the firm’s analysts believe that the chance of the first US spot Ethereum ETF being approved in this timeframe is less than 50%.
Meanwhile, in a statement to Cointelegraph, digital asset lawyer Joe Carlasare expressed his belief that Ethereum ETFs will likely be approved this year, but not in the timeframe that many people are anticipating.
“Ethereum spot ETFs will be approved,” he said. “[But] the SEC will try to carefully craft a precedent that permits them to retain some discretion in determining which digital asset ETFs will be permitted to come to market.”
Are there already Ethereum ETFs?
While a spot Ethereum ETF has yet to be approved in the US, Ethereum futures ETFs have already hit US stock exchanges.
Last year, a groundbreaking decision by the SEC saw the first ever Ethereum futures ETFs receive approval in the United States. In October 2023, nine Ethereum futures ETFs arrived on US stock exchanges.
As Cointelegraph reported at the time, however, these futures ETFs launched to an underwhelming response from the market
The difference between spot and futures ETFs
Importantly, there are two distinct types of exchange-traded funds discussed in the context of cryptocurrencies like Bitcoin and Ethereum. These are spot ETFs and futures ETFs.
When you buy a spot ETF based on a cryptocurrency, the fund manager essentially buys crypto on your behalf. The value of the ETF you hold is then directly determined by the price of the digital asset itself.
In comparison, buying a Bitcoin or Ethereum futures ETF means that you are buying a contract to purchase or sell BTC or ETH at a later date. Here, the value of your exchange-traded fund is determined by the anticipated price floors and ceilings of the underlying asset.
While both types of ETFs serve as a way to give institutional and everyday traders their chance to profit from crypto without having to directly hold coins, spot ETFs seem to be more sought after by the crypto market.
In fact, with the recent speculation about the potential approval of a spot Ethereum ETF, the price of Ethereum spiked to its highest level since May 2022.
Ethereum ETFs on non-US markets
Ethereum exchange-traded funds have existed outside of the US market for a few years now. This includes spot Ethereum ETFs, which can already be traded right next door to the United States.
Back in 2021, Canada made history when it became the first country to approve a direct custody Ethereum ETF. Since then, it has been possible for everyday traders to buy and sell Ethereum ETFs on traditional exchanges such as the Toronto Stock Exchange.
While Canada made history in North America, the continent next door was not far behind. That same year, Brazil became the first country in Latin America to approve an Ethereum ETF.
How to invest in an Ethereum ETF
In line with the core use case of exchange-traded funds, investing in an Ethereum ETF is designed to be a straightforward process.
Whereas buying crypto on your own relies on having at least a basic understanding of the Web3 landscape, investing in an Ethereum ETF is as simple as investing in just about any other type of stock.
As Ethereum ETFs are already available on some markets, licensed brokers may allow you to invest in them even if no spot or futures ETF exists in your jurisdiction. This only takes a few steps:
- Research brokers until you find the best choice for your needs.
- Set up an online brokerage account and deposit funds.
- Search for your chosen crypto ETF by its ticker symbol.
- Complete your order.
Which fund managers support crypto ETFs
An increasing number of fund managers support crypto ETFs. After all, offering these products enables them to sell a relatively new type of fund to the $30 trillion USD advised wealth management industry.
The initial wave of approved Bitcoin ETFs that launched this year is made up of 11 firms:
- ARK 21Shares
Meanwhile, proposals for a spot Ethereum ETF have been put forth by firms including VanEck, Blackrock, Fidelity, and ARK 21Shares. As of press time, these proposals are currently pending approval from the SEC.
Why Bitcoin ETFs were approved before an Ethereum ETF
Bitcoin ETFs beat Ethereum ETFs to the US market for two key reasons.
The first of these reasons boils down to Bitcoin’s popularity. Despite Ethereum’s key role in powering millions of smart contracts, Bitcoin is still often seen as the public-facing representative of the crypto movement. This is largely due to its market cap, word of mouth, and status as the world’s first cryptocurrency.
This has led to significant interest in Bitcoin ETFs, complete with Grayscale filing a lawsuit to chase a positive decision from the SEC on its Bitcoin ETF proposal. Rather than attempt to appeal the court decision, this lawsuit eventually led the SEC to approve spot Bitcoin ETFs.
Second, the approval of a spot Bitcoin ETF was simplified by the fact that the SEC had already repeatedly confirmed that Bitcoin is not security. This reduced the regulatory implications of approving Bitcoin exchange-traded products.
Ethereum, however, has been referred to as a security in some rare instances—though the SEC has never formally referred to it as such. Were Ethereum to unanimously receive the same categorization as Bitcoin as a “non-security commodity”, the path to a spot Ethereum ETF would be far more straightforward.
Fortunately, with a final May 2024 deadline for the SEC to rule on two key Ethereum ETF proposals, Ethereum could soon join Bitcoin in leading the charge for crypto exchange-traded funds.
Should you expect other cryptocurrency ETFs?
Currently, it is difficult to predict whether or not the approval of a spot Ethereum ETF would lead to other crypto ETFs following suit.
On the one hand, there are several prominent cryptocurrencies in the landscape that play a similar role to Ethereum. It stands to reason that the approval of an Ethereum ETF could therefore illuminate the pathway for these projects to receive their own spot ETFs.
At the same time, however, it is clear that the SEC is cautious about a potential influx in crypto ETFs. In fact, part of the SEC’s trepidation in approving a spot Ethereum ETF is the possibility of setting a precedent that would allow firms to launch similar exchange-traded products (ETPs) based on other cryptocurrencies.
In the same way that Bitcoin’s ETF approval did not automatically mean that Ethereum received the go-ahead, it is likely that a potential Ethereum ETF approval would not eliminate the barriers for other crypto assets.
Ultimately, only time will tell how many cryptocurrency ETFs will end up in the reach of everyday investors. For now, one of the most important dates to watch in the crypto landscape—in late May—is fast approaching.
To keep up with breakthrough developments in the crypto space and learn how to best navigate the landscape, make sure to stay tuned to the Matcha blog.