Markets
US Spot Ether ETFs Debut on the Market, Another Victory for the Cryptocurrency Industry
By Hannah Lang and Suzanne McGee
(Reuters) – U.S. exchange-traded funds (ETFs) tied to the price of ether had a strong debut on Tuesday, with $1.07 billion of shares traded in the products, according to CF Benchmarks, a digital asset index provider, Bitwise Asset Management and traders.
The most actively traded ETFs were Grayscale’s Ethereum Trust, with more than $450 million in turnover, the iShares Ethereum Trust, with about $245 million in turnover, and the Fidelity Advantage Ether ETF, with $137 million, Bitwise said.
Products from Franklin Templeton, VanEck, Bitwise, 21Shares and Invesco also began trading on Tuesday.
Following the launch of nine spot bitcoin ETFs in the U.S. in January, the ether products mark another victory for the cryptocurrency industry’s campaign to push digital assets into the mainstream, although the products are unlikely to attract the same volume of inflows, analysts said.
Tuesday’s trading volumes were lower than the $4.6 billion traded in bitcoin ETFs when they debuted in January. Data on ether ETF inflows will be available Wednesday morning.
“Although ether ETFs may not attract the same inflows as bitcoin ETFs, they are an important step in the development of the cryptocurrency market,” said Grzegorz Drozdz, a market analyst at investment firm Conotoxia Ltd.
The price of ether, the world’s second-largest cryptocurrency after bitcoin, trended lower on Tuesday, dragging down the prices of new ETFs, according to CoinGecko, a cryptocurrency data firm. After the market close, ether traded unchanged at $3,486.75, according to CoinGecko.
Market participants believe the introduction of ETFs is significant for the industry’s longstanding commitment to classifying ether as a commodity rather than a security.
While the Securities and Exchange Commission has not explicitly stated that ether is a commodity, the new products are defined in filings as commodity-based trusts.
The debut strengthens the “legitimacy” of the cryptocurrency market, Cristiano Ventricelli, senior digital assets analyst at Moody’s Ratings, said in a report on Tuesday, adding that cryptocurrency ETFs would help strengthen market stability and reduce volatility.
The launch of Bitcoin ETFs was the culmination of a decade-long battle with the SEC, which rejected the products over concerns about market manipulation.
The agency was forced to greenlight the ETFs after losing a lawsuit brought by digital asset manager Grayscale Investments, despite warning at the time of approval that the products were still highly risky.
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The launch was one of the most successful in the history of the ETF market: the products attracted $33.1 billion in net inflows in June, according to Morningstar Direct data.
Bitcoin ETF issuers have been battling hard over fees, with many firms offering to waive fees entirely for a period of time.
Ether ETF fees range from 0.19% for Franklin Templeton’s Ether ETF to a high of 2.5% for Grayscale’s Trust ETF, which is converting to an ETF, according to their public offering documents. The rest are concentrated around 0.25%.
Overall, fees are comparable to those of Bitcoin products, although issuers offer fewer exemptions.
Grayscale has launched a “mini” version of its ether ETF with a fee of just 0.15%.
While estimates of demand for ether-based products vary widely, Galaxy Research, whose affiliate Galaxy Asset Management has an ether-based ETF pending with Invesco, has predicted they could attract monthly inflows of $1 billion.
Matteo Greco, a research analyst at Fineqia International, wrote in a note that demand for ether ETFs will be key to determining investor interest in digital assets beyond bitcoin.
A major concern for some investors is the SEC’s ban on ether ETFs’ “staking” mechanism, a key feature of the ethereum blockchain that allows users to lock up their tokens for a period of time in exchange for a return. As currently structured, the SEC will only allow ETFs to hold regular, non-staking ether.
Issuers began filing for ether ETFs in September. Executives initially had little hope that the SEC would approve the products, but the agency surprised the industry in May when it approved the first necessary rule changes.
SEC Chairman Gary Gensler told Reuters last month that the Grayscale ruling had influenced his thinking about approving ether-based products because the underlying market circumstances were similar.
(Reporting by Hannah Lang in New York and Suzanne McGee in Providence, Rhode Island; reviewing by Christina Fincher and Stephen Coates)