Ethereum
5 Things to Know About Ethereum’s First Spot Price ETFs
The SEC finally cleared the way for the first Ether spot price ETFs.
On May 22, the United States Securities and Exchange Commission (SEC) approved the first eight applications for Ether (ETH 0.44%) spot price exchange traded funds (ETF) from Grayscale, Bitwise, iShares, VanEck, Ark Invest, Invesco, Fidelity and Franklin Templeton. Ether is the second largest cryptocurrency in the world and the primary coin of the Ethereum network.
This announcement came just four months after the SEC authorized the first spot price Bitcoin (BTC 0.12%) ETF for trading. But should investors assume that these planned ETFs will establish a firm floor under the price of Ether and become compelling long-term investments? Let’s review the five key facts to decide.
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1. The first Ether ETFs won’t start trading anytime soon
The SEC has approved the first regulatory filings for the eight Ether ETFs, but they will not begin trading until the agency approves their S-1 filings. This process could take several months. For reference, the SEC approved S-1 filings for the first Bitcoin spot price ETFs approximately three months after clearing their initial regulatory filings.
2. The decision transforms Ether into a commodity
In the past, both the Ethereum and Bitcoin blockchains used an energy-intensive system. proof of work (PoW) mining method to produce coins. But in 2022, the Ethereum network moved to the most energy efficient network. proof of stake (PoS). This transition, known as “melting,” reduced the network’s energy consumption by 99.95% and made it deflationary, meaning more ether was being burned than produced.
However, the SEC initially claimed that The Merge created the Ether coin and Ethereum-based tokens more similar to securities than to commodities. This move dramatically changed the way Ether coins are created and managed. Regulators then repeatedly stated that Bitcoin was the only cryptocurrency that could be classified and pinned to the spot price as a commodity because it was digitally mined like a precious metal via the PoW method.
Therefore, the SEC’s decision to approve the first Ether ETF filings implies that the coin can now be classified as a commodity rather than a security. This change could pave the way for smaller Ethereum-based tokens, such as Shiba Inu — as well as independent PoS-based cryptocurrencies like Solana — to obtain their own ETFs at spot prices.
3. Ether ETF investors cannot stake their holdings
Another key difference between Ether and Bitcoin is the “staking” process, which allows investors to earn interest by locking up their Ether coins on the network for a certain period of time. The SEC, which argues that staking-as-a-service solutions should be classified as unregistered securities, has already sued cryptocurrency exchanges including Coinbase (PIECE OF MONEY -3.77%) and Kraken to allow users to stake their own coins.
Grayscale, Ark and other companies originally wanted to add staking features into their ETFs, but they removed those proposals in their updated materials last month. This change could make their ETFs less attractive than real digital coins.
4. The SEC approved the filings likely to avoid more litigation
Last year, the SEC lost a case against Grayscale, which sued the agency for trying to block the conversion of its popular Bitcoin trust into an ETF. This loss softened the SEC’s stance and paved the way for the first Bitcoin ETFs.
Earlier this year, blockchain company Consensys sued the SEC over its refusal to recognize Ether as a commodity, while Grayscale and its peers were widely expected to sue the SEC again if it did not approve their regulatory filings for spot price ETFs. So, for now, it appears the SEC has backed away from tightly regulating Ether to avoid further legal battles.
5. Ether ETFs should attract less attention than Bitcoin ETFs
Grayscale currently holds nearly $11 billion in assets in its Grayscale Ethereum Trust (ETHE 0.60%), which it attempts to convert into a spot price ETF. However, it is much smaller than the Grayscale Bitcoin Trust before converting to its spot-price ETF, which now houses over $20 billion in assets.
These new Ether ETFs could attract the attention of traditional and institutional investors, but they probably won’t gain as much momentum as the Bitcoin spot price ETFs did earlier this year. Ether also lacks major short-term catalysts comparable to Bitcoin halvedwhich cut mining rewards in half earlier this year.
Should you buy Ether ETFs?
Ether ETFs may not attract as many investors as Bitcoin ETFs, but they could represent an easy way for investors to gain exposure to Ether without purchasing the coins directly. But investors should always pay attention to fees, see if they actually match the spot price of Ether, and realize that they won’t be able to stake their holdings.
Therefore, investors should not rush to buy Ether ETFs once they hit the market. Instead, they should wait and see if the convenience of owning these ETFs in a brokerage account outweighs the benefits of owning Ether in a brokerage account. crypto wallet.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Bitcoin, Coinbase Global, Ethereum, and Solana. The Motley Fool has a disclosure policy.