Ethereum ETFs: What They Are and How to Invest in Them

The cryptocurrency industry has reached a new milestone with the launch of the new Ethereum spot exchange traded funds (ETFs) began trading on U.S. exchanges on July 23, 2024.

The exchanges took place just six months after the historic approval of spot Bitcoin ETFs in January. Now, ordinary investors can buy and sell the world’s two largest cryptocurrencies directly from their brokerage accounts, pushing the once-obscure realm of digital currency even further into regulated mainstream finance.

Here’s what you need to know about Ethereum ETFs.

What is an Ethereum ETF?

An Ethereum spot ETF is an investment vehicle that pools investors’ money to buy Ethereum directly. The fund is managed by an investment firm and traded on a traditional exchange, providing a more accessible and regulated way to trade digital currencies.

Ethereum ETFs based on futures contracts were launched in February 2021, but this method often resulted in higher costs for investors and could lead to price discrepancies due to differences between future and spot prices.

These new spot funds, first approved by the Securities and Exchange Commission (SEC) in May 2024, will directly hold Ether, the native cryptocurrency of the Ethereum blockchain. This development follows the approval of Bitcoin spot ETFs earlier in 2024, further integrating cryptocurrencies into traditional financial markets.

Eight asset management firms, including Grayscale, Bitwise, Fidelity, BlackRock and Invesco, have been approved to offer spot Ethereum ETFs, which began trading on July 23. The majority of the spot Ethereum ETFs offered expense ratios ranging from 0.19 to 0.25 percent of assets under management — a relatively low cost, especially considering the sometimes high commissions for buying and selling cryptocurrencies.

So far, the new ETFs appear to be a success. The nine Ethereum ETFs collectively generated about $1.1 billion in trading volume on their first day of trading, according to Bloomberg Intelligence.

Who Should Invest in Ethereum ETFs?

Ethereum ETFs offer a more traditional investment path into the cryptocurrency market. Unlike buying Ethereum directly, which requires an understanding digital wallet storage and exchanges, ETFs simplify the process by bundling Ethereum into a familiar investment structure. This accessibility could potentially attract more institutional investors and even individual investors who don’t want to deal with cryptocurrency exchanges.

However, investors who buy Ethereum ETFs will be missing out staking rewardswhich can generate passive income for coin holders. The SEC only approved Ethereum ETFs after staking was taken off the table for ETFs. As a result, investors can earn higher returns by staking ether directly on an exchange rather than holding ether in the form of an ETF.

Ethereum ETFs may be suitable for long-term investors looking for diversification or exposure to blockchain technology. However, it is important to note that Ethereum remains a high-risk investment with a relatively short trading history and no underlying cash flows to support its value.

How to buy an Ethereum ETF?

Ethereum ETFs are traded on traditional exchanges, including the Nasdaq, so they can be purchased via most online brokers that offer traditional investments such as stocks and bonds. While some brokers, such as Robin Hoodalso offer investors the ability to purchase cryptocurrencies directly, others may only offer Ethereum futures contracts.

For investors looking for a broader range of cryptocurrencies and direct ownership of digital coins, cryptocurrency exchanges such as Binance And Coinbase are necessary. However, it is important to note that these platforms are currently under increased regulatory scrutiny from the SEC.

Ethereum ETF

ETF Transaction Expense Ratio

To attract investors, many issuers waive management fees for the first six months or a year, or until the fund reaches a specific asset level.

Other types of cryptocurrency investments

As cryptocurrency becomes mainstream, there are more ways than ever to invest in it.

Here are some alternative options.

Direct investment in cryptocurrency

For direct exposure to cryptocurrencies, investors can purchase them through a cryptocurrency exchange. While brokers offer a limited selection of cryptocurrency offerings, often focusing on major cryptocurrencies, exchanges offer a wider range of options. However, investors should be aware of the potential fees and complexities associated with cryptocurrency trading.

Blockchain ETFs

Blockchain ETFs provide indirect exposure to the cryptocurrency ecosystem. These funds invest in companies using blockchain technology, including cryptocurrency companies, technology giants and financial institutions.

Cryptocurrency related actions

Investors can also buy shares of companies that are directly involved in the cryptocurrency industry. Examples include exchanges like Coinbase as well as companies like PayPal and Robinhood that offer cryptocurrency services. You will need to do some thorough research on each company to understand its specific exposure to the cryptocurrency market.

In conclusion

Traders gained access to Ethereum ETFs in July 2024. While challenges and uncertainties remain, the approval of Ethereum ETFs is another sign of the growing maturity and acceptance of the crypto industry. In addition to Ethereum ETFs, investors can also gain exposure to the cryptocurrency by investing in stocks of crypto-related companies, blockchain ETFs, or by directly purchasing digital coins through exchanges.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. Furthermore, investors are advised that past performance of investment products is no guarantee of future price appreciation.

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