SEC approves ether ETFs as crypto moves closer to mainstream (08/2024)

The nine ether ETFs, including the conversion of a $9.3bn Grayscale Investments trust and new launches from bitcoin ETF giants BlackRock and Fidelity, gained approval from the SEC on Monday afternoon, and trading began on Tuesday morning. The SEC did not immediately respond to a request for comment.

Ether is the native cryptocurrency of the ethereum blockchain and is the second-largest crypto token in the world behind bitcoin with a market capitalisation of about $415bn. The price of ether ticked up about 1 per cent after trading began on Tuesday and is up more than 47 per cent since January 1.

The approvals, which follow those of ether futures ETFs last year, give crypto a firmer toehold in traditional US finance after January’s launch of the first US spot bitcoin ETFs. The price of bitcoin was up more than 51 per cent year to date on Tuesday morning.

“Traditional asset management can no longer ignore crypto as an asset class,” said Matt Hougan, chief investment officer of crypto fund sponsor Bitwise. “I think you’re going to see effectively everyone embrace this space.”

Cboe Global Markets, which lists five of the ether ETFs, said initial trading showed “good market quality”.

“All products opened for trading smoothly, with strong participation from our dedicated market makers who have been actively quoting and providing liquidity from the outset,” Cboe said in a statement.

As was the case with bitcoin, ethereum ETF issuers are jostling for investor interest with a relatively tight range of fees. Final expenses for all but one of the products would be below 0.25 per cent, with at least five issuers planning to entirely waive fees at first, according to data compiled by Bloomberg Intelligence.

There is a glaring exception in the pricing war: Grayscale will keep in place the 2.5 per cent management fee for its large converted ethereum ETF while seeding a “mini” version with 10 per cent of the larger ETF’s assets. The smaller sibling is expected to have the lowest post-waiver fee of the initial ether ETFs at 0.15 per cent.

Grayscale in January also kept the fee for its bitcoin ETF management fee at 1.5 per cent — down from 2 per cent initially, but still way above its competitors. That decision has generated $160mn in fee revenue for Grayscale’s bitcoin ETF so far in 2024, the third-highest of any US ETF and good for 2 per cent of all US ETF revenue, according to Bryan Armour, Morningstar’s director of passive strategies research.

These ether products are not initially expected to bring in as many assets as the bitcoin ETFs into which investors have put more than $17bn in new money over the past six months since their launch.

While the ethereum blockchain has a wide range of uses beyond storing value, investors might not be able to wrap their heads around it as opposed to bitcoin’s common reference point as “digital gold”, said Tim Ogilvie, global head of institutional with Kraken, a US cryptocurrency exchange.

“I would be surprised if you saw a similar explosive start for ETH,” Ogilvie said.

Hougan has predicted that ether ETFs would attract about $15bn over their first 18 months on the market. He added that flows into the new funds “could be a little squirrelly” in the summer.

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