Ethereum 4 min, 13 sec READ

by Mike Dalton

Regulators approved spot Bitcoin ETFs in January. Spot Ethereum ETFs could be next in line.

January 2024 saw the launch of spot Bitcoin ETFs, a type of investment vehicle that allows investors to purchase shares of a fund holding Bitcoin.

Those spot Bitcoin ETFs have seen rapid success, with top funds achieving $4 billion in assets under management (AUM). That success could set the stage for similar Ethereum spot ETFs in the coming months. Here’s what you should know.

How Do Spot Ethereum ETFs Work?

Spot Ethereum ETFs involve an asset manager or trust issuing shares of a fund consisting primarily of Ethereum (ETH), which is held by a custodian. The fund aims to provide exposure to, and match the price performance, of ETH itself.

This opens crypto investing to traditional investors. In this investment style, you can purchase shares of an ETF through a brokerage. You can profit from Ethereum's price gains without needing to manage an exchange account, and without needing to withdraw funds to a self-custodied wallet. This is ideal for large investors and institutional investors who need traditional options.

By contrast, investing in ETH via a retail crypto exchange is a better option if you intend to spend, transact, or withdraw your ETH holdings. And, like ETF holdings, retail exchange holdings allow you to profit on ETH's price gains.

Which Firms Have Applied for ETH ETFs?

Several firms including VanEck, Ark Invest, Hashdex, Grayscale, Invesco-Galaxy, BlackRock (iShares), and Fidelity have applied for spot Ethereum ETFs.

In addition to their current Ethereum ETF proposals, each of those firms previously put forward a spot Bitcoin ETF application that gained approval in January. This may or may not increase each firm's chances of an ETH ETF approval.

Which Exchanges Could List the ETFs?

Three traditional exchanges are additionally responsible for proposed rule changes that would allow them to list and trade shares of Ethereum ETFs. Those exchanges are Nasdaq, the New York Stock Exchange (NYSE), and Cboe.

What Is the SEC's Role?

The U.S. Securities and Exchange Commission (SEC) is responsible for approving all exchange-traded funds (ETFs), including Ethereum ETFs.

The SEC will make its concerns around Ethereum ETFs known as it carries out meetings with asset managers and exchanges. It will also publish requests for comment, and asset managers will submit amendments to satisfy those concerns. Those developments will make the agency's stance more clear.

Who Votes on Approval?

Though many SEC members engage with applicants prior to a decision, just five members ultimately vote on approval. SEC chair Gary Gensler emphasized in a recent statement that the SEC's latest approvals are "cabined to ETPs holding one non-security commodity, Bitcoin." SEC commissioner Caroline Crenshaw also dissented against recent Bitcoin ETF approvals. Others, especially SEC commissioner Hester Peirce, are more favorable to cryptocurrency ETFs. Their stances on spot Bitcoin ETFs may in part carry over to spot Ethereum ETFs.

How Do ETH ETFs Differ From Bitcoin ETFs?

Ethereum ETFs hold Ethereum (ETH) rather than Bitcoin (BTC). Though in one sense this simply substitutes one cryptocurrency for another, ETH and BTC also have significantly different qualities that could affect chances of approval.

Notably, Ethereum makes up a smaller part of the crypto market than Bitcoin by most metrics. ETH issuance also relies on staking rather than mining, and Ethereum supports independently developed smart contracts that are potentially exploitable. Accordingly, the ETH market is not identical to that of BTC.

The SEC is highly interested in market manipulation and other risks, and as such, it may take the above factors into account as it approaches its decision.

What Are the Odds of a May Approval?

There appear to be roughly equal expectations of approval and rejection. As of Jan. 27, Polymarket reported 46% odds of spot Ethereum ETF approval by May 31, 2024.

Experts have similar views. One JP Morgan member has similarly placed odds of a May approval as low as 50%. Other experts, such as Bloomberg ETF analyst James Seyffart, however, have put approval odds slightly higher at 60% in May. Seyffart's colleague, Eric Balchunas, previously predicted 70% approval odds.

Will Delays Affect the SEC’s Decision?

The SEC has recently extended decision deadlines for certain spot Ethereum ETFs, including those from Fidelity, Grayscale, and BlackRock.

However, those extensions do not affect the deadline for decisions on spot Ethereum ETFs in general. The SEC must reach a decision on a spot ETH ETF application from VanEck by May 23, 2024 and cannot postpone its decision any later than that. It will likely decide on all similar proposals at that time.

What Alternatives Currently Exist?

Though no spot Ethereum ETFs are currently active in the U.S., various Ethereum futures ETFs have existed since October 2023. These funds are described on Blockworks’ ETF tracker and can be traded through various brokerages.

You can also invest in Ethereum (ETH) directly through various retail cryptocurrency exchanges. See Bitrates’ list of exchanges for more information.

Want to know more about crypto ETFs? Read our coverage of January's spot Bitcoin ETF approvals for more information.