Ethereum
Why ARK Invest dropped out of the billion-dollar Ethereum ETF race – DL News
- ARK Invest will not issue a spot Ethereum ETF alongside 21Shares.
- The two companies’ Bitcoin ETF is performing very well.
- ARK could hesitate due to price – or wait for the SEC to approve staking.
Nearly a dozen companies are competing to launch Ethereum spot exchange-traded funds. But crypto heavyweight ARK Invest is not one of them.
“ARK believes in the transformative potential and long-term value of the Ethereum blockchain, but, at this time, ARK will not move forward with an Ethereum ETF,” said an ARK spokesperson. DL News.
ARK Invest issued a spot Bitcoin ETF in January alongside 21Shares, a company specializing in launching crypto investment products. And the two companies seemed ready for another round, jointly filing an Ethereum ETF.
This is no surprise: the massive success of Bitcoin ETFs suggests that Ethereum ETFs could quickly accumulate billions of dollars in assets with even a fraction of the demand.
But a recent filing showed that ARK had abandoned the partnership and that 21Shares would pursue a spot Ethereum ETF on its own.
Expensive products
There are several reasons why ARK may have changed its mind.
On the one hand, launching an ETF is expensive – and in the case of Bitcoin and Ethereum spot ETFs, the fees are so low that issuers don’t always make a profit.
“Although Bitcoin ETFs have performed well in terms of assets, issuers face profitability challenges due to fee compression and the relatively high costs of crypto-related fund service providers,” Will Cai , managing director of indices at Kaiko, a crypto data specialist and research firm, said DL News.
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ARK and 21Shares’ Bitcoin ETF is one of the best-performing funds out of 10 launched in January. Third behind BlackRock and Fidelity, it sucked up nearly $3.5 billion in assets in five months – an impressive performance by normal ETF standards.
Even so, with a 0.21% fee, it may be difficult for ARK and 21Shares to break even on the product. They still have to pay their Bitcoin custodian – in this case, Coinbase – as well as administrative fees, their treasury custodian, and other things like transfer agents.
“This could well put pressure on the terms of the partnership when there is not much profit to be made,” Cai said.
Waiting for staking
It is also possible that ARK is waiting for the Securities and Exchange Commission to give the green light to Ethereum ETFs that also provide staking services.
“We will continue to evaluate effective ways to provide our investors with exposure to this innovative technology in a way that realizes its full benefits,” the ARK spokesperson said. DL News.
As currently designed, ETFs will provide pure exposure only to the price of Ether, without the ~3% return that investors can earn by staking their Ether.
In other words, not only will investors have to pay fees to ETF issuers for exposure to Ether, but they will also miss out on opportunities to grow their Ether holdings.
“There is a huge idiosyncratic factor with ETH that will affect demand and that is staking,” said Adam Morgan McCarthy, an analyst at Kaiko. DL News.
“Even paying a 0.20% fee without the wagering element seems like a failure to me,” he added.
Tom Carreras is a markets correspondent for DL News. Do you have any advice on ARK or Ethereum ETFs? Contact us at tcarreras@dlnews.com