On Tuesday, July 23, 2024, U.S. exchange-traded funds (ETFs) linked to ether, the native cryptocurrency of the Ethereum blockchain, made their market debut. The launch saw $1.07 billion in shares traded, according to data from CF Benchmarks, Bitwise Asset Management, and traders.
Grayscale's Ethereum Trust led the pack with over $450 million in turnover, followed by iShares Ethereum Trust at $245 million and Fidelity Advantage Ether ETF with $137 million. Other firms, including Franklin Templeton, VanEck, Bitwise, 21Shares, and Invesco, also introduced their ether ETF products.
This launch follows the successful introduction of nine U.S. spot bitcoin ETFs in January 2024, which attracted $33.1 billion in net inflows by June. While ether ETFs may not reach the same level of inflows, they represent a significant step in cryptocurrency market development.
Ethereum, proposed in 2013 by Vitalik Buterin, has become a cornerstone of the cryptocurrency ecosystem. It supports smart contracts and decentralized applications (dApps), making it a crucial platform for the growing DeFi (Decentralized Finance) sector. The network's transition to a proof-of-stake consensus mechanism in 2022, known as "The Merge," significantly reduced its energy consumption compared to Bitcoin.
Fees for the new ether ETFs range from 0.19% for Franklin Templeton's product to 2.5% for Grayscale's trust. Most offerings cluster around 0.25%, with Grayscale introducing a "mini" version at 0.15%. Galaxy Research projects potential monthly inflows of $1 billion for these products.
The Securities and Exchange Commission (SEC) approved the ether ETFs despite previous reservations about cryptocurrency-based products. SEC Chair Gary Gensler cited the Grayscale court ruling as influential in the decision, noting similarities in underlying market circumstances.
"Although ether ETFs may not attract as much inflow as bitcoin ETFs, they represent an important step in the development of the cryptocurrency market"
[[Grzegorz Drozdz, market analyst at Conotoxia Ltd]]
One notable limitation is the SEC's exclusion of the "staking" mechanism in these ETFs, a key feature of the Ethereum network that allows users to earn yield by locking up their tokens. This restriction may impact the products' appeal to some investors.
As the cryptocurrency market continues to evolve, the introduction of ether ETFs marks another milestone in the industry's push for mainstream adoption and regulatory acceptance.