Ethereum ETF launch: Here’s what you need to know

Following in the footsteps of Bitcoin, the Ethereum cryptocurrency is about to get its own Exchange Traded Fund (ETF). 

In May this year, the US Securities and Exchange Commission (SEC) approved the launch of 8 exchange-traded funds (ETFs) backed by spot Ether. These include the Grayscale Ethereum Trust, Bitwise Ethereum ETF, BlackRock’s iShares Ethereum Trust, VanEck Ethereum Trust, ARK 21Shares Ethereum ETF, Invesco Galaxy Ethereum ETF, the Fidelity Ethereum Fund and Franklin Templeton’s Franklin Ethereum ETF.

The move comes after the SEC in January approved bitcoin ETFs. A spot ethereum ETF will allow investors to gain exposure to the price of ethereum without the complications and risks of owning ethereum directly.

Over the last three months, the price of Ethereum has risen by more than 5 per cent to trade at levels or around $3,590 on several cryptocurrency exchanges.

And in a note published by Bybit, the world’s third largest cryptocurrency exchange says that “the game-changing ETF will bring the second-largest cryptocurrency to everyday brokerage accounts and institutional investors”.

Bybit further notes that trading in an ethereum ETF is expected to kick off in the first week of July.

“Ethereum is the crypto product favored by traditional capital such as BlackRock and Franklin Templeton, both of whom have tokenised funds on the platform,” said Hao Yang, head of financial products at Bybit.

“Given this, the chain seems poised to become the institutional pick. With its native yield, the ETH token allows for composability, and we are seeing protocols building interesting derivatives based on ETH’s stable yield, leveraging this to create crypto primitives that mimic those built on top of the US Treasury market. Finally, because a portion of ETH is burned (sent to a wallet from which no withdrawals are possible), the asset can become deflationary, which means the more network effects kick in, the scarcer the asset becomes.”

Published below is the full note from Bybit, which provides an explainer of what to expect in the coming weeks and months.

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What is the Ethereum (ETH) ETF?

An exchange-traded Fund (ETF) is an investment fund traded on stock exchanges, holding assets such as stocks, commodities, or bonds. The ETH Spot ETF is unique because it is directly backed by Ethereum, meaning it holds actual ETH in its reserves. This allows investors to gain exposure to ETH’s price movements without purchasing or managing the cryptocurrency directly. 

What’s the Impact?

The potential inflows resulting from the ETH Spot ETF are substantial. Expectations are that it will capture 15-20 per cent of the assets of Bitcoin ETFs in the US, translating to around $8 – 12bn and more from global markets. These anticipated inflows are driven by market interest, accessibility, and regulatory approval, enhancing overall market stability and growth. 

Moreover, based on Metcalfe’s Law, the network effects of increased adoption and usage of Ethereum are expected to strengthen its ecosystem, further driving up its value. The introduction of the ETH Spot ETF is likely to bolster development on Ethereum, solidifying its position as a cornerstone of the digital economy.

Given these developments, many crypto analysts and experts expect ETH to reach new all-time highs by the end of the year. 

According to recent data, Bybit’s institutional investors’ exposure to ETH has almost tripled since the ETF announcement on May 24, 2024—moving from 6.54% to a current weighting of 14.29%. This surge underscores the growing confidence in Ethereum’s future performance and the expected positive impact of the ETF launch.

Institutional Investor Allocations Before ETH ETF Announced (Snapshot 10/5/2024)

Institutional Investor Allocations After ETH ETF Announced (Snapshot 14/6/2024)

Retail investors on Bybit have also increased their ETH allocations, although not as dramatically as institutional investors. The allocation to ETH has risen from 7.40% to 9.52%, reflecting a cautious but positive response to the ETF announcement.

Retail Investor Allocations Before ETH ETF Announced (Snapshot 10/5/2024)

Retail Investor Allocations Before ETH ETF Announced (Snapshot 14/6/2024)

Conclusion

The announcement of the ETH Spot ETF has had a big impact on investment portfolios. Institutional investors have shown a significant shift in their strategies, tripling their ETH allocations, while retail investors have steadily increased their exposure to Ethereum. These changes highlight the growing confidence in Ethereum’s future and the potential of the ETH Spot ETF to drive further market dynamics.