Spot ETFs backed by the price of ether (ETH), the second most valuable cryptocurrency on the market, began trading today on the other side of the Atlantic. This is the second set of crypto ETFs to be approved by the SEC, following those for bitcoin on 11 January. But unlike the market leader, which benefited from Wall Street's fresh money very quickly, ether is more timid after its launch. Let's take a look.
The approval of an asset other than bitcoin for Spot ETFs is an important step for the cryptocurrency sector as a whole. As a reminder, these ETFs replicate the performance of bitcoin, and now ether (ETH), through a physical holding of the crypto-asset and not through exposure to futures products. This brings a degree of legitimacy to an industry that has long been the target of traditional finance.
Many investors are now wondering whether the stratospheric rise of bitcoin at the start of the year, following the launch of Bitcoin Spot ETFs, might also be possible for ether. Already, it's going to be hard to beat bitcoin on this new terrain. According to calculations by Bloomberg Intelligence, the Bitcoin Spot ETFs launched by BlackRock and Fidelity on 11 January are the two best ETF launches in history, measured on the basis of their first-month inflows. So the story could be different for ether, not least for a number of reasons.
Ethereum has a different history to Bitcoin. BTC is considered by many investors to be ‘digital gold’, not least because of its limited quantity (21 million units). But understanding Ethereum, which bills itself as a ‘global computer’ or ‘smart contract platform’, is not so obvious to the uninitiated investor.
Investors who hold ether directly, on platforms such as Binance or Coinbase for example, are able to generate cash flows through staking, which are often offered at between 2% and 5% return over 365 days of holding. But ETF issuers will not be allowed to send these staking rewards to ETF investors. This could temper the flow of capital into these stock market products.
There is more competition. Bitcoin is the winner when it comes to talking about ‘digital store of value’ in the crypto universe. Ethereum was the smart contract platform crushing the competition until the last few years, but there are now many other competitors that have become cheaper and/or faster (Solana, Avalanche, Cosmos, Polygon...). This competition can also fragment the flow of capital into the asset.
There is less media coverage. Bitcoin ETFs were the talk of Wall Street when they were approved in January. Every media website and TV channel provided constant coverage of the launches. The hype surrounding the Ethereum Spot ETFs is far less than that of Bitcoin, which may soften the euphoria for this launch.
The issuers of Ethereum Spot ETFs are broadly the same as those of bitcoin, with the exception of Ark Invest, Hashdex and Valkyrie.
On Tuesday 23 July 2024, Ether was up 1.5% at around $3,500. All bets are now off: will the Ethereum Spot ETFs follow in the footsteps of the Bitcoin ETFs? Find out in the coming weeks.
