Ethereum ETFs: The Next Big Crypto Opportunity?

The recent approval of spot Bitcoin (BTC) exchange-traded funds (ETFs) has sparked talk in the crypto community on whether the second largest digital asset in the world, Ethereum (ETH), could see a similar solution.

The approval of a spot BTC ETF was a pivotal step in the crypto industry, offering the opportunity for traditional investors to step into the crypto market, injecting capital and enhancing market stability.

Moreover, BTC ETFs provide regulatory clarity and security, making BTC investments safer by boosting the cryptocurrency’s credibility.

With all the pros linked up together, BTC ETFs gained a positive price prediction and accumulated over $10 billion in assets under management (AUM) less than a month since their debut.

The only question standing in front of crypto experts right now is whether we have an Ethereum ETF approval date.

Key takeaways

  • The successful launch of a Bitcoin ETF has industry experts speculating that an Ethereum ETF approval is inevitable, with reputable firms like Blackrock and Grayscale already applying for such products.
  • The launch of an ETH ETF could provide significant advantages to the Ethereum ecosystem, including increased accessibility for traditional investors, heightened liquidity, and enhanced credibility for the entire crypto market.
  • ETH price is 15% up in February amid anticipation of the potential approval of an ETH ETF.
  • Challenges remain, including regulatory scrutiny and the need for clarity regarding Ethereum’s classification as a security or non-security by the SEC.

What is Ethereum ETF?

Similar to a BTC ETF, an ETH ETF is a financial product that lets investors gain exposure to Ethereum through traditional stock exchanges.

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They provide a regulated way for investors to invest in ETH without the need to hold the cryptocurrency directly.

Some of the most popular financial firms offering investment products related to cryptocurrencies, such as ETFs, are Grayscale and ProShares.

Grayscale Investments offers trusts, such as the Grayscale Ethereum Trust, that grant investors exposure to ETH without the complexities of buying and storing the digital asset.

It was among the first securities solely tied to ETH’s price, providing shares designed to track ETH’s market value minus fees.

But what is the difference between the Grayscale Ethereum Trust and a potential Grayscale Ethereum ETF?

The biggest difference would lie in their structure and trading method. The Grayscale Ethereum Trust allows investors to purchase shares representing ownership of Ethereum through private placements and over-the-counter trading.

On the other hand, a Grayscale Ethereum ETF, or ProShares Ethereum ETF for that matter, would be traded on traditional stock exchanges like other ETFs, providing investors with more liquidity and trading opportunities during market hours.

Is Ethereum ETF Approval a Sure Thing?

The co-founder and CEO at CoinFlip, Ben Weiss, told Techopedia that an ETH ETF approval is “most likely inevitable” following the successful launch of a BTC ETF.

“However, that’s not to say the road to approval will be easy, considering the first BTC ETF was filed over 10 years ago. That said, reputable firms like Blackrock and Grayscale have already applied for ETH ETFs and are eagerly waiting for the green light to pull the trigger,” he added.

Ryan Lee, the chief analyst at Bitget Research, added that speculations for a spot ETH ETF are high and “rightly so.”

This is likely due to the US Securities and Exchange Commission (SEC) Commissioner Hester M. Peirce noting that the regulator will not make the same mistake as it did with the BTC ETF. In addition, Lee pointed out that top analysts see a consensus that a spot ETH ETF is only inbound.

“The stage has been set as Ethereum futures ETF already trades in the US, checking one of the first prerequisites the SEC looks out for. Overall, we believe the approval of ETH ETF is possible,” Lee told Techopedia.

Ethereum ETF to Be a “Win” For the ETH Ecosystem

According to Lee, the possible release of an Ethereum ETH will “be a massive win for the ETH ecosystem” mainly because it will allow traditional investors to embrace Ethereum in a regulated and easy environment.

“The spot ETFs make it easier for traditional investors to get exposure to Ethereum without directly owning or managing cryptocurrencies. This convenience will serve as a huge appeal to traditional investors and might trigger more capital inflow overall, which will impact the price of Ethereum,” he said.

CoinFlip’s Weiss added that an ETH ETF approval also has the potential to create a surge of liquidity, upward price pressure, and increased institutional involvement while adding credibility to the entire crypto ecosystem at large.

And while the approval of a BTC ETF was “huge for the industry,” according to Weiss, the journey to get there was not as easy.

“It even took a federal appeals court ruling that the SEC improperly rejected a spot BTC ETF approval. ETH does offer staking, which may cause the regulator analysis to be different. The recent BTC ETF approval feels like the train has left the station, and it is only a matter of time before an ETH ETF is approved too,” Weiss said.

Bitget Research’s Lee added that even the spot BTC ETF greenlight did not get a uniform vote of approval from SEC commissioners, which could hint at Ethereum not being any different.

“With a lack of clarity on the exact status of Ethereum as a security or non-security, prospective Ethereum spot ETF issuers will exercise all avenues to ensure they meet the required obligation for the regulator to approve the much-anticipated product,” Lee said.

Bitcoin ETF Could Still Prevail

It is important to remember, however, that Ethereum continues to be the second-largest cryptocurrency on the market, standing firm behind Bitcoin.

Despite its revolutionary technology and value proposition, Lee noted that ETH “may always be considered a less viable alternative to Bitcoin in its decentralized capabilities, especially in the eyes of the Bitcoin maxis.”

Lee stressed that because of this, BTC ETFs “will still prevail in the eyes of investors.” In addition, inconsistencies from the SEC regarding what Ethereum classifies as could dampen sentiment in the new product if it is to come.

On the other hand, CoinFlip’s Weiss noted that the ETH price is already 15% up in February following anticipation of a potential ETH ETF approval.

That, paired with other catalysts such as Ethereum’s Dencun upgrade could see a potential influx of investors betting bullish on an ETH ETF.

Ethereum ETFs Could Stimulate Innovation

Weiss concluded that an ETH ETF approval could further increase the accessibility and reach of Ethereum while also bridging the gap between traditional finance and the digital economy.

“The powerful combination of major network updates and potential ETF approvals creates the possibility to help further propel adoption, boost its price, and attract investors while simultaneously stimulating innovation and development within the ecosystem,” he said.

Bitget research’s Lee added that an Ethereum ETF could increase liquidity, as seen with what has been happening with BTC in recent weeks.

However, to catch a significant chunk of this capital, crypto exchanges will have to reignite their creativity to float products that will keep investors from exploring ETFs on traditional bourses.

“Since the capital boom from the mainstream world will impact ETH price overall, builders within the Ethereum network will become incentivized to create new innovative solutions to return value to stakeholders by capturing more of the capital in the industry,” Lee concluded.

The Bottom Line

The anticipation of an Ethereum ETF approval looms large, promising significant ramifications for the crypto market and beyond.

With industry giants like Grayscale and Blackrock vying for approval, industry experts are bullish on the likelihood of this milestone.

If approved, an ETH ETF could usher in a new era of accessibility, liquidity, and credibility for the Ethereum ecosystem and the whole crypto industry.

FAQs

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Iliana Mavrou
Crypto journalist

Iliana is an experienced crypto/tech journalist reporting on blockchain, regulation, DeFi, and Web3 industries. Before joining Techopedia, she contributed to a number of online publications, including Capital.com, Cryptonews, and Business2Community, among others. In addition to working in journalism, she also has experience in tech and crypto PR.  Iliana graduated from the City University of London with a degree in Journalism in 2021. She is currently pursuing a Master's degree in Communication.