Investing in Ethereum ETFs: What to Know

Like bitcoin ETFs, ethereum ETFs offer investors a convenient means of gaining access to the cryptocurrency without having to hold the digital asset directly. Find out how ether ETFs work, how they compare with bitcoin ETFs, and what the future may hold for Ethereum. 

What Is an Ethereum ETF? 

An ethereum ETF, or ether ETF, is an exchange-traded fund that seeks to track the price of ethereum, which is the second-largest cryptocurrency behind bitcoin. Most ether ETFs track the price movement of ETH by holding futures contracts. This structure enables investors to gain exposure to ethereum without having to buy or store the cryptocurrency. 

What Do Ethereum ETFs Hold? 

Most ethereum ETFs hold ETH futures contracts, while some ether ETFs hold a mix of ether and bitcoin futures. Using futures to track the price of a digital asset is nothing new as the first bitcoin ETF, the ProShares Bitcoin Strategy ETF (BITO), holds cash settled, front-month bitcoin futures. 

What Is Ethereum?  

Ethereum is an open-source blockchain platform that was created to enable the development of decentralized applications, or dapps, and smart contracts. It was proposed by computer programmer Vitalik Buterin in late 2013 and development began in early 2014, with the network going live on July 30, 2015. Ethereum is one of the most well-known and widely used blockchain platforms, second only to Bitcoin in terms of market capitalization and influence. 

Ethereum ETFs vs. Bitcoin ETFs 

Ethereum ETFs and bitcoin ETFs are similar in many ways. Both types of ETFs track the price of their respective cryptocurrencies with futures contracts, and they offer investors convenient exposure to crypto without having to directly hold the digital asset. However, there are also some key differences between the two types of ETFs. 

Here is a comparison of ethereum ETFs and bitcoin ETFs: 

• Benchmark asset: Ethereum ETFs track the price of ethereum (ETH), whereas bitcoin ETFs tracks the price of bitcoin (BTH). 
• Time on the market: The first ethereum ETFs were launched on Oct. 2, 2023, whereas the first bitcoin ETF, BITO, made its debut on Oct. 19, 2021. 
• Trading volume: Being newer to the market, ether ETFs have lower trading volume compared with the larger bitcoin ETFs. 
• Expenses: Both types of crypto ETFs have relatively high expenses, as expense ratios for both typically range from about 0.65% to 0.95%. 

Financial Advisor Outlook on Ethereum ETFs 

Although it’s too early to tell if ethereum will be embraced by the advisor community, the digital asset is expected to strike a chord with financial advisors. Ric Edelman, founder of the Digital Assets Council of Financial Professionals, believes the new ethereum ETFs could find more appeal among advisors compared with bitcoin ETFs. 

This appeal, Edelman noted, comes down to “many people view ethereum as the superior choice over bitcoin, because of its broader capabilities.”  

How to Invest in Ethereum ETFs 

The steps for investing ethereum ETFs are the same as any other type of ETF, as well as other securities like stocks, bonds and mutual funds. To invest in an ether ETF, you will need an investment account, such as an individual brokerage account or a type of individual retirement account, or IRA. Once you have the investment account open, you will need to fund it with cash, and you’ll be ready to invest in ether ETFs.  

The basic steps to invest in ETFs are:  

1. Open an investment account.  
2. Fund the investment account with cash.  
3. Select the crypto ETF(s) to purchase.  
4. Execute the trade(s) to buy shares.  

Read more about how to build an ETF portfolio. 

List of Ethereum ETFs 

Ethereum ETFs available to investors include: 

• Bitwise Ethereum Strategy ETF (AETH) 
• Bitwise Bitcoin and Ether Equal Weight Strategy ETF (BTOP) 
• ProShares Ether Strategy ETF (EETH) 
• ProShares Bitcoin & Ether Equal Weight Strategy ETF (BETE) 
• Bitcoin & Ether Market Cap Weight Strategy ETF (BETH) 
• VanEck Ethereum Strategy ETF (EFUT) 

As of Oct. 2, 2023, Grayscale Investments filed to convert its Grayscale Ethereum Trust into a spot ethereum ETF. Global X and Ark Invest also have plans for ether ETFs.

The Outlook for Ethereum ETFs 

The outlook for ethereum ETFs looks bright, but the road ahead could be bumpy. One catalyst for growth could be that Ethereum is undergoing an upgrade to its network, which could make it more scalable and efficient. 

Furthermore, ethereum is more than just a digital currency. Ethereum is a platform that can be used to build dapps and smart contracts, or computer programs that execute things like trades automatically based on preset criteria. This gives Ethereum the potential to revolutionize many industries, such as finance, healthcare and supply-chain management. 

However, like bitcoin ETFs and other crypto-related investments, the rapid growth potential for ether ETFs comes with the potential for price volatility. Therefore, investors should use caution and do their research before considering an investment in these unique ETFs.