What Are Spot Ethereum ETFs, and How to Invest in Them?
Why Trust Cryptonews
Key takeaways:
- Ethereum ETFs allow you to invest in Ethereum indirectly without the complexities of direct cryptocurrency ownership.
- The SEC has greenlit eight ETFs, including Grayscale Ethereum Trust, Bitwise Ethereum ETF, VanEck Ethereum Trust, BlackRock iShares Ethereum Trust, Ark 21Shares Ethereum Trust, Fidelity Ethereum Fund, Franklin Templeton Ethereum ETF, and Invesco Galaxy Ethereum ETF. As of now, spot Ethereum ETFs haven’t launched yet.
- Spot Ethereum ETFs simplify the investment process, are highly liquid, and offer lower fees than mutual funds. They are also subject to high volatility and do not offer staking options.
- To invest, research the ETFs, select a brokerage, fund your account, purchase ETF shares, and monitor your investment.
Before we learn what Ethereum ETFs are, it’s important to note that they have not yet been launched. The U.S. Securities and Exchange Commission (SEC) is currently reviewing eight companies that hope to offer these funds as soon as mid-July. Ether, or ETH, is the second-largest cryptocurrency by market capitalization. Spot ETFs would allow you to invest in Ethereum without actually owning the cryptocurrency. These funds are expected to help bring Ethereum into the mainstream. They simplify the investment process for those interested in cryptocurrency but intimidated by the technical complexities of buying, storing, and keeping it safe.
What is Ethereum?
Ethereum is currently the second-largest cryptocurrency, right behind Bitcoin. Unlike Bitcoin, which is primarily seen as digital gold, Ethereum introduces a unique layer of functionality with its platform. It not only supports the cryptocurrency Ether (ETH) but also enables the creation and operation of decentralized applications (dApps).Launched in 2015 by Vitalik Buterin and other co-founders, Ethereum quickly distinguished itself from Bitcoin with its integrated smart contract feature.
Smart contracts are self-executing contracts with the terms of the agreement directly written into lines of code. These contracts automatically execute and control or document legally relevant events according to the terms of a contract or an agreement. This capability extends the use of blockchain from merely recording financial transactions to automating decentralized applications and agreements.
Ethereum’s blockchain is a public ledger that records all transactions and is maintained by thousands of peers worldwide. This ledger not only tracks transactions but also hosts these smart contracts, allowing them to interact in a transparent and conflict-free environment without the need for intermediaries.
Ethereum uses the “proof-of-stake” (PoS) consensus mechanism that is more energy-efficient than the “proof-of-work” (PoW) used by Bitcoin. Additionally, Ethereum is known for popularizing non-fungible tokens (NFTs), which are unique digital items verified using Ethereum’s technology, revolutionizing digital ownership and art.
The value of ETH, Ethereum’s native token, correlates with the platform’s adoption rate, as it’s used to compensate participants who perform computations and validate transactions.
What are Ethereum ETFs?
An exchange-traded fund is a basket of assets that can be traded through a stock exchange or a brokerage firm. Unlike investments that require users to actively speculate, ETFs track the prices of commodities, currencies, or other securities they are tied to.A spot Ethereum ETF will generally track the price of Ether. Trading in cryptocurrency is sometimes seen as the domain of technically savvy people. The introduction of ETFs can make it easier for regular investors and those in traditional finance to invest in Ethereum without having to buy the digital asset directly.Jan van Eck, CEO of the first ETH fund to apply for SEC clearance, praised the regulatory breakthrough in May 2024.
“This is really one of the most amazing things that I’ve seen in my career with respect to securities regulation,” he said at the time.
Advantages of Spot Ethereum ETFs
- Spot Ethereum ETFs come with lower trading costs because tracking removes the need for consulting analysts.
- The ETFs allow investors to diversify asset classes, gaining indirect exposure to crypto assets. This also makes the product accessible, meaning anyone can buy the ETF without any special skill.
- Spot Ethereum ETFs are highly liquid. Holders can trade their shares on stock exchanges throughout the day.
- The product also offers comparably lower fees compared to mutual funds.
- Share prices are updated in real-time.
- Investors can buy or sell positions during the trading day without dealing directly with crypto exchanges.
Disadvantages of Spot Ethereum ETFs
- Spot Ethereum ETF prices tend to be volatile as they are tied to the price of Ether, which they track. Investors moving into the products must brace themselves for some wild price swings.
- No staking. The SEC approval prevents Ethereum ETF investors from ‘staking’ – a type of fixed investment that allows holders to ‘lock away’ their Ether for a certain period to receive passive income. The ETH they ‘lock away’ is used to keep the Ethereum blockchain running.
- Ethereum is an emerging asset class, so it is prone to unusual regulatory scrutiny compared to traditional assets like stocks or gold.
- For those keen on the decentralization synonymous with the cryptocurrency industry, spot Ethereum ETFs will be a disappointment. Ether ETFs are highly centralized and held by the issuer.
Which Ethereum ETFs Have Been Approved?
On May 23, 2024, the U.S. Securities and Exchange Commission (SEC) approved the listing of eight Ethereum ETFs. Here is a list of the Ethereum ETFs that received a green light:
Grayscale Ethereum Trust
Grayscale won a landmark case against the SEC in August 2023, paving the way for the approval of spot Bitcoin ETFs. In 2024, the company successfully sought approval to convert its ETH investment product, the Grayscale Ethereum Trust (GET), into an ETF. According to its website, GET has around $9 billion in Ethereum assets under management. Grayscale’s Ethereum exchange-traded fund will trade under the ticker symbol ‘ETH’.
Bitwise Ethereum ETF
Bitwise Ethereum ETF Trust is a spot ETF issued by Bitwise Asset Management firm in the U.S. The parent company is expected to provide $2.5 million in seed funding, allowing the trust to buy the Ether required to trade. According to Bitwise’s latest filing with the SEC, Pantera Capital Management is looking to purchase up to $100 million worth of shares. Bitwise’s Ethereum ETF will be listed on the NYSE Arca under the ticker ‘ETHW.’
VanEck Ethereum Trust
VanEck Ethereum Trust’s New York-based parent company currently has $102 billion in assets under management. The first company to apply for an ETH ETF license, VanEck has been managing assets since 1955 and moved to handle crypto assets in 2017. VanEck has indicated a willingness to engage in the race to the bottom with regards to fee waivers. The ETF has proposed a fee waiver that could extend into 2025. The waiver will be discontinued for a 0.2% fee once it reaches $1.5 billion in assets. Matthew Sigel, head of digital assets research for VanEck, says the firm “aims to be a leader on crypto ETF fees even if it means we lose money at the outset.” The VanEck Ethereum ETF will trade on CBOE BZX under the ticker symbol ‘ETHV.’
Blackrock iShares Ethereum Trust
BlackRock runs the largest Bitcoin ETF, with over $16 billion in net inflows since its January 2024 launch. The giant issuer is now looking to extend its success to Ethereum, with its SEC filing showing that it spent $10 million on the initial purchase of 400,000 shares in its iShares Ethereum Trust. The investment sets the ETFs net asset value.Analysts have tipped BlackRock, which is yet to announce its charges, to be a fierce actor in the fee waiver race. According to Bloomberg Senior ETF analyst Eric Balchunas, “What BlackRock is going to charge is probably the single most important missing variable outside of the exact launch date…Their fee is the sun that the rest will need to orbit around.” The fund will trade under the ticker ‘ETHA’, with the Bank of New York Mellon as the trustee custodian. Coinbase cryptocurrency exchange will hold the underlying Ether.
Ark 21Shares Ethereum Trust
ARK 21Shares Ethereum ETF is a partnership between Ark Investment Management and 21Shares. 21Shares has been operating exchange-traded products that provide exposure to digital assets since 2018. The unit has approximately $2.0 billion in assets under management. It also administrates 40 digital asset-related exchange-traded products in various territories. The team that has managed previous exchange-traded products will be used to manage the ETH ETF. Coinbase will store the underlying Ether for the Ark 21Shares Ethereum Trust, while Delaware Trust Company is the trustee custodian. The ETF will trade under the ticker ‘ARKY,’ with reported fees of 1%.
Fidelity Ethereum Fund
Fidelity is a legacy financial institution whose participation gives Ethereum mainstream optics. A Fidelity affiliate, FMR Capital, bought one share from its Ethereum ETF for $40 in May 2024 before purchasing 125,000 shares at approximately $38 in June. According to Fidelity’s latest filing, proceeds from the sale of the shares, which totaled more than $4.7 million, have been used by the trust to purchase 1,250 ETH. The company says this is its seed investment for the Ethereum ETF. It compares unfavorably to the $20 million seed that Fidelity invested in its spot Bitcoin ETF in January.The specific details of the company’s fund have not yet been released. “Fidelity kicked off the S-1-athon. No fee included yet though (Franklin only one, with fee so far at 19bps),” Balchunas said in a post on X after Fidelity’s filing.
Franklin Templeton Ethereum ETF
Franklin Ethereum Trust announced its fee gambit in a filing with the SEC, stating: “The fees of the Sponsor accrue daily at an annualized rate equivalent to 0.19% of the net asset value of the Fund.” The fees are the lowest of any Bitcoin or Ethereum ETF. Balchunas, the Bloomberg senior ETF analyst, noted that Franklin had “launched the first salvo in the ETH ETF fee war.” Franklin’s ether holdings will be managed by Coinbase, while cash holdings will be under the Bank of New York Mellon.
Invesco Galaxy Ethereum ETF
The Invesco Galaxy Ethereum ETF filing shows that the trust will typically hold Ether and trade on CBOE under the ticker ‘QETH.’ The Bank of New York Mellon will be the cash custodian, while Coinbase will hold the ETH. The filing does not reveal specific details about the seed funding. Steve Kurz, the head of asset management at Galaxy Digital, said earlier this week that he expects the SEC to approve a spot Ethereum ETF by the end of July.
How to Invest in Ethereum ETFs
Ethereum ETFs are like traditional stock shares, but they’re backed by actual Ethereum (Ether) held by the ETF issuer. Once these ETFs are available on the stock exchange, you can buy and sell them just like any other stock. The value of these shares will reflect the current price of Ethereum, which is about $2,416.71 now. Here’s how you can start investing in them:
- Research: Before buying, do your homework on different ETFs. Look for ones with low fees and high trading volumes (which means they’re easy to buy and sell) that comply with the laws in your area.
- Choose a broker: Select a brokerage firm that fits your needs and open an account.
- Fund your account: Transfer money from your bank into your brokerage account.
- Buy shares: Place an order to buy shares of the ETF. You can set a specific price to buy at (limit order) or buy at the current market price (market order).
- Monitor your investment: Keep an eye on your investment. Depending on how the ETF performs, you might want to adjust your strategy.
By following these steps, you can invest in Ethereum without directly buying or managing the cryptocurrency.
Connor Sephton 
