The United States is about to launch new exchange-traded funds (ETFs) based on ether, the second largest cryptocurrency. Unlike the excitement surrounding Bitcoin ETFs earlier this year, the new ether ETFs are receiving a more cautious reception from investors.
Set to debut on Tuesday, these ETFs from big companies like BlackRock and VanEck arrive six months after Bitcoin ETFs made a splash. While Bitcoin ETFs quickly attracted large investments, many investors are now carefully weighing their options with ether ETFs. Concerns include the lack of staking rewards, a feature that allows ether holders to earn additional returns, which will not be available through these new ETFs.
Mixed reactions as new Ether exchange-traded funds hit US market
The United States is about to see the launch of new exchange-traded funds (ETFs) pegged to ether, the second-largest cryptocurrency. However, unlike the excitement that surrounded Bitcoin ETFs earlier this year, investors are showing more caution and uncertainty about these new ether ETFs.
What is happening with Ether ETFs?
On Tuesday, nine asset managers, including big names like BlackRock, VanEck and Franklin Templeton, will launch ether ETFs on US trading platforms. This comes six months after Bitcoin ETFs made their debut in January. While Bitcoin ETFs quickly attracted significant investment, expectations for ether ETFs are more guarded. Analysts predict that ether ETFs could capture around 25% of the investment flows that Bitcoin ETFs captured, but some, like CoinShares’ Steven McClurg, think it could be closer to 10%.
Why the caution?
A key reason for caution is the SEC’s decision not to include ether staking in these ETFs. Staking is a process where users lock their ether to help secure the Ethereum network and earn rewards. These rewards, or returns, can add significant returns, about 3.12% annually as of July 22, according to StakeRewards.com. However, SEC rules will only allow ETFs to hold ether without staking, meaning investors will not benefit from these rewards through ETFs.
Impact of not including bets
Excluding staking rewards from ETFs could make them less attractive to some investors. It’s similar to buying a bond but not receiving interest payments, which may not make much sense for those looking to earn additional returns. Instead, investors could choose to stake their ether outside of ETFs to reap these rewards.
Market Reactions and ETF Participation
Gray Digital’s Nathan Gauvin and ETC Group’s Chanchal Smadder have expressed concern over the lack of staking rewards. Gauvin believes staking could eventually be included in ether ETFs in the future, but it is not part of this initial launch. Smadder compared the situation to holding non-dividend stocks and noted that demand for staking ether products is currently higher.
Liquidity problems with betting
Smadder also highlighted that staking can lead to liquidity issues, as there can be delays of up to nine days in withdrawing staked ether. Unstaked ether, on the other hand, remains accessible and liquid at all times.
The bigger picture
Nana Murugesan of Matter Labs sees the launch of ether ETFs as an important step for the cryptocurrency market. He believes that as Ethereum usage and adoption grows, the value of these ETFs could increase, benefiting from the broader impact of the Ethereum network.
Comparing with Bitcoin ETFs
Investors expect that ether ETFs will not attract as much investment as Bitcoin ETFs, mainly because ether’s market value is lower: $424 billion compared to Bitcoin’s $1.4 trillion. Bitcoin ETFs saw nearly $7 billion in investments in their first three weeks and a total of $33.1 billion as of the end of June.
As ether ETFs prepare to launch, the market remains divided. Investors are weighing the potential benefits against the limitations imposed by current regulations.
Also read: SEC to approve Spot-Ether ETFs: a major milestone for the cryptocurrency market