Ethereum ETFs in Focus As Spot Bitcoin Funds Launch

Crypto investors pin hopes on ethereum futures funds converting to spot products.

Michael Jordan of the championship Chicago Bulls had Scottie Pippen. Warren Buffett had the late, great Charlie Munger. And bitcoin has ethereum.

While the two cryptocurrencies are only related through their connection to the blockchain, these best-known crypto stars are getting more attention than ever. That’s saying something, given how investors have flocked to crypto—especially since the pandemic in 2020. 

With the two most notable “coins,” the main difference is how ethereum takes bitcoin’s role a step further. Both use the digital ledger known as blockchain, which allows for financial transactions outside of the purview of governments and banks. But ethereum, which launched about ten years ago (and roughly five years after bitcoin) consists of a network designed to build decentralized applications, while bitcoin is closer to a “digital asset.”

By way of analogy, it’s the difference between a jewelry store selling gold and the gold itself. Ethereum transactions include executable code that serves as a mechanism to arrange digital contracts between parties. Also, each block on the ethereum network takes a fraction of the time to create compared to that same process on the bitcoin network. 

So now that spot bitcoin ETFs have listed on U.S. stock exchanges (11 of them initially on Jan. 11), will ethereum come next? Wall Street is already chattering about this and a recent surge in ethereum’s price was likely based on that assumption. But as with bitcoin, investors do not have to wait until spot “ether” is available in ETF form. Existing ETFs get investors most of the way there.

Ethereum Futures ETFs Seek Spot Status 

The dominant player in this area currently is the $7.6 billion Grayscale Ethereum Trust (ETHE), which debuted in December 2017.

Let's be careful because it's a trust traded over-the-counter and not technically an exchange-traded fund. Still, it's seeking to convert to a spot ethereum fund so it bears mentioning. 

With an expense ratio of 2.50%, astronomical for the ETF world, ETHE has “de-fied” (pun intended) the odds. Or has it? ETF investors have been eager to get their hands on anything crypto these past few years. In addition, ETHE currently trades at a discount of 15% compared to the spot price of ethereum, according to YCharts data. This further makes a case where investors would rather own a diluted version of the real thing than nothing at all. Bitcoin presents a similar situation. 

Other competitors in the “not spot ethereum but similar to it” category include the ProShares Ether Strategy ETF (EETH), the VanEck Ethereum Strategy ETF (EFUT) and the Bitwise Ethereum Strategy ETF (AETH). That trio holds assets of $19.7 million, $18.4 million and $2.6 million respectively, though all have been around just a few months. However, they also have much lower expense ratios.

Since October 2023, ETHE has been a runaway train, having nearly doubled, while the others are “only” up 19% or more. So far in 2024, ETHE is up 9%, about the same as the three much smaller but much less costly peers. 

Ethereum to Follow Bitcoin?

All this could prove moot if the U.S. Securities and Exchange Commission treats ethereum exchange-traded products as it did those related to bitcoin—with skepticism and stonewalling. But don’t rule out a bonanza. While spot Bitcoin ETFs are currently the toast of the financial services industry, the fever could potentially spread to ethereum and many of the less commonly used but emerging crypto asset types.

Should that occur, the only prescription won’t be, as the iconic line from Saturday Night Live sketch goes, “more cowbell.” It will be—yikes!—more ETF industry employees and regulators.