Discover how Ethereum’s latest development can transform your cryptocurrency investment strategy.

Bitcoin (BTC 1.67% investors may remember a great Wednesday last January when the first exchange-traded funds (ETFs) based on Bitcoin spot prices hit the shelves.

It was a memorable moment that took years to create.

How Bitcoin ETFs Reshaped the Market

The Winklevoss twins of Facebook Fame first filed for a spot Bitcoin ETF in 2013. The Securities and Exchange Commission (SEC) rejected the application five years later, but the idea of Spot Bitcoin ETFs persisted.

The SEC eventually bowed to investor pressure and a flood of ETF applications, approving the first Bitcoin futures-based funds in 2021. cash price ETFs followed on January 10, 2024.

Led by the people iShares Bitcoin Investment Fund (I BITE 5.32%) and the converted mutual fund Grayscale Bitcoin Background (GBTC 5.18%), 11 crypto ETFs entered the market that day. All of them have gained about 40% since then, well ahead of the S&P 500 Index 14% gain in the index. Distinguished Growth Investor Cathie Wood expects these funds to attract tons of institutional investors to the cryptocurrency market, driving Bitcoin prices up significantly over time.

And now it is Ethereum‘s (ETH 0.45%) back.

The SEC finally approved a couple of Ethereum ETFs this week, and they are set to have a similar long-term effect on the second-largest cryptocurrency.

The Road to Ethereum ETFs

As with Bitcoin ETFs, the road to Ethereum ETFs has been a long one. Grayscale began testing an Ethereum ETF in 2017, launching the Grayscale Ethereum Background (IT IS 4.84%) as a mutual fund in the summer of 2019. Other companies slowly followed. Futures-based funds came first, and applications for spot-priced Ethereum ETFs began piling up last fall.

The SEC took an important step in Maygenerally allowing several exchanges to trade Ethereum-based ETFs as a commodity. Each application still had to be reviewed in detail, delaying the launch of actual ETFs by a few months.

But the job is done, and the SEC has approved nine spot Ethereum ETFs. Grayscale’s mutual fund has been converted to a more investor-friendly ETF with US$7.5 billion in assets under management (AUM).

O iShares Ethereum Trust ETF (ETA 4.94%) is an early favorite, of course, given the iShares family’s household name status and the financial giant’s backing Black stone. Everyone is offering discounted rates to increase interest from early investors.

So this is a pretty direct repeat of the launch of the Bitcoin-based ETF in January. The iShares Bitcoin fund has accumulated $10 billion in invested funds faster than any ETF in the history of exchange-traded funds. Together, the 11 Bitcoin ETFs now hold $60 billion in crypto assets. And as I said, they have delivered market-beating returns, perfectly tracking the performance of the underlying commodity over the past six months.

Market turbulence and future outlook

Ethereum ETFs have launched during a tumultuous market week. The stock market is in a bearish trend, fueled by political unrest, surprising economic reports, and unpredictable results from the earnings season that just began. The turmoil has also spread to the cryptocurrency market, sending Bitcoin and Ethereum tumbling sharply. The new ETFs have failed to provide much value to investors so far.

Then again, the same thing happened in January. Bitcoin and its new ETFs fell as much as 16% in the first three weeks before gaining momentum.

If I may bring Cathie Wood back into analysis, she didn’t care at all about the initial drop in Bitcoin’s price.

“We’re very excited that Bitcoin is now available in an ETF wrapper and therefore very accessible at very low prices,” Wood said in an interview with CNBC in late January, near the bottom of the ETF’s post-launch price drop. “We think this is one of the most important investments of our lifetimes.”

The same logic should apply to this week’s Ethereum ETF launches as well. If Bitcoin is the digital equivalent of physical gold that carries wealth, Ethereum’s smart contracts look set to revolutionize financial systems and how ownership of real-world assets is tracked.

Ethereum ETFs provide a safer, more familiar way to invest in cryptocurrencies. By investing through established financial institutions, investors can benefit from the protections and oversight that come with regulated markets, while reducing the risks associated with direct cryptocurrency ownership. And in the long run, inviting large groups like retirement accounts and professional money managers into the crypto market can only be good for the long-term value of the Ethereum cryptocurrency.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Bitcoin, Ethereum, and Grayscale Bitcoin Trust (BTC). The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Meta Platforms. The Motley Fool has a disclosure policy.

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