Popular Bitcoin ETFs Show Success, Potential for Ethereum ETFs to Highlight Crypto’s Investment Value
The landscape of the cryptocurrency industry is undergoing a significant shift towards mainstream acceptance. In the United States, the once-hostile regulatory environment post-Sam Bankman Fried era is softening as the upcoming fall elections draw near. Both Democrats and Republicans are recognizing the substantial number of their constituents, estimated at over 50 million, who are actively engaged in crypto investments. Recent polls indicate a growing desire among voters for the country to take a leading global role in blockchain technology, the foundational technology supporting cryptocurrencies and other emerging applications.
A noteworthy development in the financial industry this year was the Securities and Exchange Commission’s approval of exchange-traded funds (ETFs) linked to the bitcoin spot market. This approval marked one of the most successful ETF launches in history, attracting approximately $16 billion in net inflows by early July. Investors resonated with bitcoin’s narrative as digital gold due to its finite supply, enabling them to trade these spot ETFs like any other security directly from their brokerage accounts.
Similarly, attention is now turning towards ether, the native cryptocurrency of the Ethereum blockchain. The SEC is expected to approve spot ETFs for ether imminently. With a market capitalization of around $400 billion and an annual income of approximately $1 billion, ether presents a narrative that is more complex than Bitcoin’s straightforward digital gold story.
Described by pundits as “ultrasound money,” “digital oil,” the “digital app store,” or even the “internet bond,” ether is unanimously recognized as a blockchain digital asset with a stable supply, utility, and attractive yield for many investors. Ethereum’s ecosystem is powered by smart contracts, enabling a wide range of decentralized applications to execute programmable activities, including token swaps, payments, and asset tokenization. Market participants engaging in transactions on the Ethereum blockchain require ether to pay fees known as “gas,” driving demand for the token.
One distinguishing factor of ether is its yield, currently ranging between 3 and 4%, a feature that sets it apart from Bitcoin. Ethereum’s network security relies on “stakers” who pledge their tokens to secure the network, earning a yield in return. Despite the potential yield, U.S. regulators are unlikely to permit staking rewards for ETF investors upon the launch of the spot ETF.
While earning yield presents opportunities, it also carries risks. Ethereum’s network penalizes negligent or dishonest staking participants through a process called “slashing,” and staked ether may not always be readily available for ETF redemptions, posing additional risks. However, various enterprise infrastructure, insurance offerings, benchmarks, and liquidity solutions are being developed to mitigate risks and support institutional yield for Ethereum.
Ultimately, the launch of the spot ether ETF in the U.S. will provide an essential platform for traditional investors to familiarize themselves with the asset and potentially explore the decentralized, blockchain-enabled economy it represents. As the industry continues to evolve, the launch of the ether spot ETF may usher in a new wave of investors seeking yield opportunities or engaging with innovative blockchain applications. Christopher Perkins, Managing Partner and President of CoinFund, is at the forefront of navigating these developments in the cryptocurrency space.
