US spot Ether ETFs make strong market debut in another win for crypto industry

New York – US exchange-traded funds (ETFs) tied to the price of Ether enjoyed a strong debut on July 23, with US$1.07 billion (S$1.44 billion) of shares changing hands in the products, according to CF Benchmarks, a digital asset index provider, Bitwise Asset Management and traders.

The most actively traded ETFs were Grayscale’s Ethereum Trust, with more than US$450 million in turnover, the iShares Ethereum Trust, with about US$245 million in trading, and Fidelity Advantage Ether ETF, with US$137 million, Bitwise said.

Products from Franklin Templeton, VanEck, Bitwise, 21Shares and Invesco/Galaxy also began trading on July 23.

Following the launch of nine US spot Bitcoin ETFs in January, the Ether products mark another win for the cryptocurrency industry’s campaign to push digital assets into the mainstream, although the products are unlikely to garner the same volume of inflows, analysts said.

July 23’s trading volumes fell short of the US$4.6 billion traded in the Bitcoin ETFs during their January debut.

“Although Ether ETFs may not attract as much inflow as Bitcoin ETFs, they represent an important step in the development of the cryptocurrency market,” said Mr Grzegorz Drozdz, market analyst at investment firm Conotoxia.

The price of Ether, the world’s second-largest cryptocurrency after Bitcoin, trended lower on July 23, pulling down the prices of the new ETFs, according to CoinGecko, a cryptocurrency data firm. After market close, Ether was trading flat at US$3,486.75, according to CoinGecko.

Market participants see the introduction of the ETFs as significant for the industry’s longstanding effort to classify Ether as a commodity rather than a security.

While the US Securities and Exchange Commission (SEC) has not explicitly said Ether is a commodity, the new products are defined in filing documents as commodity-based trusts.

The debut enhances the cryptocurrency market’s “legitimacy”, said Mr Cristiano Ventricelli, senior analyst of digital assets at Moody’s Ratings, wrote in a report, adding the crypto ETFs would help boost market stability and reduce volatility.

The Bitcoin ETF launches were the culmination of a decade-long tussle with the SEC, which had rejected the products due to market manipulation concerns.

The agency was forced to green-light the ETFs after losing a court challenge brought by digital asset manager Grayscale Investments, although it warned when approving them that the products were still highly risky.

The launch was one of the most successful in the ETF market’s history with the products attracting US$33.1 billion in net inflows as of June, according to Morningstar Direct data.

Bitcoin ETF issuers competed hard on fees, with many firms offering to waive fees entirely for a certain period of time.

The Ether ETF fees range from 0.19 per cent for Franklin Templeton’s Ether ETF to a high of 2.5 per cent for Grayscale’s Ether trust, which it is converting into an ETF, according to their public offering documents. The rest cluster at around 0.25 per cent.

Overall, the fees are comparable to the Bitcoin products, although issuers are offering fewer waivers.

Grayscale rolled out a “mini” version of its Ether ETF with a fee of only 0.15 per cent.

Mr Matteo Greco, research analyst at Fineqia International, wrote in a note that demand for the Ether ETFs will be crucial in ascertaining investor appetite for digital assets beyond Bitcoin.

A major issue for some investors is the SEC’s exclusion of the “staking” mechanism in the Ether ETFs, a key feature on the Ethereum blockchain that allows users to lock up their tokens for a certain period of time in exchange for yield. As currently constructed, the SEC will allow the ETFs to only hold regular, unstaked Ether. REUTERS