Nine Ethereum futures ETFs were launched on the same day, which is unprecedented.
Compiled & organized by: DeepTechFlow
In the same week, 9 Ethereum ETFs were simultaneously approved.
What do all these SEC-approved Ethereum ETFs mean for cryptocurrencies? Will Bitcoin ETF be next?
In this episode of the Bankless podcast, hosts Dacid and Ryan, along with Bloomberg Intelligence analyst Eric Balchunas, discuss the recent launch of multiple Ethereum futures ETFs in the United States and their impact on the cryptocurrency market.
Hosts: Dacid & Ryan, Bankless
Speaker: Eric Balchunas, Bloomberg Intelligence analyst
Podcast: Bankless Podcast
Original Title: "Ethereum ETFs: Everything You Need To Know"
Episode: Link
Broadcast Date: October 10th
Why is "ETF Week" unprecedented?
In the history of ETFs, the SEC typically allows them to be listed in the order of their applications. However, in this special ETF week, the SEC broke this tradition by allowing multiple Ethereum futures ETFs to be launched simultaneously. In this week, nine Ethereum futures ETFs were launched on the same day, which is unprecedented.
This new strategy by the SEC is considered a correction to the previous launch of Bitcoin futures ETFs. In the previous launch of Bitcoin futures ETFs, the ProShares Bitcoin Futures ETF attracted the majority of funds and trading volume due to its first-mover advantage. To avoid this situation from happening again, the SEC allowed multiple Ethereum futures ETFs to be launched simultaneously.
DeepTechFlow Note: ProShares is a financial services company that offers a variety of exchange-traded funds (ETFs) focused on specific strategies. ProShares provides a range of innovative ETFs to help investors achieve their investment goals.
- Although the launch of these Ethereum futures ETFs is unprecedented, their trading volume is surprisingly low. Each ETF is attempting to attract investors through different marketing strategies, and this unprecedented ETF week is seen as a prelude to the launch of spot Bitcoin ETFs. Both the market and analysts are closely monitoring the performance of these Ethereum futures ETFs to predict the market reaction and potential impact of future spot Bitcoin ETFs.
The significance of Ethereum futures ETFs
Eric emphasized that the launch of Ethereum futures ETFs is a milestone event, serving as a bridge between the crypto and traditional finance (TraFi) worlds. These ETFs allow traditional market investors to invest in cryptocurrencies, especially Ethereum, in a way that is familiar and comfortable to them.
These ETFs operate within a regulatory framework, providing confidence to cautious investors interested in cryptocurrency investments. They can indirectly invest in cryptocurrencies through the purchase of ETFs without the need to directly hold or manage cryptocurrencies. This not only increases the visibility and acceptability of cryptocurrencies but also helps attract more mainstream capital into this market.
While traditional market investors can enjoy the convenience of cryptocurrency investments through ETFs, Eric pointed out that all value will ultimately flow into the crypto world. Eric emphasized that these ETFs are the "biggest pipeline" connecting trillions of dollars of capital and cryptocurrency market value, and the opening of this "pipeline" is seen as good news for the cryptocurrency market. This massive capital flow will greatly drive the growth and development of the cryptocurrency market.
Futures ETF vs. Spot ETF
Futures ETF
Advantages
Liquidity: Futures ETFs can better track the prices of their underlying assets in daily trading, providing a convenient investment channel for investors.
Access: Futures ETFs provide a pathway for traditional investors to enter the cryptocurrency market, especially for those who do not want to directly hold cryptocurrencies.
Disadvantages
Rolling costs: Futures ETFs need to regularly "roll" their contracts, which may result in additional costs and efficiency losses. For example, if investors expect Ethereum to rise by 20%, the return on investment through futures ETFs may only be around 18% due to the impact of rolling costs.
Gradual replacement: Eric predicts that once spot Bitcoin and Ethereum ETFs are launched, futures ETFs may gradually be marginalized or disappear.
Spot ETF
Advantages
No rolling costs: Compared to futures ETFs, spot ETFs do not require rolling contracts, thus avoiding related costs and efficiency losses.
More direct market exposure: Spot ETFs provide more direct exposure to cryptocurrencies for investors and may become the preferred choice for mainstream investors.
Long-term holding: For long-term investors, spot ETFs may be a better choice as they more accurately reflect the value of the underlying assets.
Disadvantages
- Not yet launched: Spot Bitcoin and Ethereum ETFs have not been launched, so their actual performance and market acceptance are still to be observed.
The significance of Ethereum ETFs & Is ETH a security?
ETH ETFs provide a fair trading opportunity, allowing investors to invest based on their predictions without being influenced by other variables. Compared to products like GBTC, ETH ETFs do not have significant premiums or discounts, providing a more fair investment opportunity.
An important feature of ETFs is their ability to arbitrage, creating and redeeming shares, which ensures that the price of the ETF remains consistent with the value of its underlying assets.
Futures ETFs have the issue of rolling costs, which is an additional variable that may affect investor returns. Futures ETFs are considered "red light" ETFs, with additional risks and costs; spot ETFs are considered safer and fairer investment tools as they directly track the value of the underlying assets without the issue of rolling costs.
The question of whether ETH is a security remains unresolved and requires further discussion and decision-making by regulatory agencies, legal experts, the cryptocurrency community, and other stakeholders.
The launch of ETH ETFs is an important step towards the maturity and mainstream acceptance of the cryptocurrency market. These products may attract more traditional investors into the cryptocurrency market, especially those who invest through financial advisors.
Eric predicts that spot Bitcoin and Ethereum ETFs will be approved in the future, which will be an important milestone for the cryptocurrency market. The launch of spot ETFs will further drive mainstream acceptance and market maturity of cryptocurrencies.
Impact and significance of Ethereum ETFs
Financial advisors account for approximately 70-75% of all ETF investors, while institutional investors and retail investors account for 10% and 15% respectively. Financial advisors in the United States manage around $30 trillion in assets. This is a huge market, and ETFs provide these advisors with a familiar and convenient investment tool.
As people's wealth grows, they are more inclined to seek the help of financial advisors to manage their assets, conduct estate planning, and find tax reduction strategies. The launch of ETH ETFs has opened the doors to this $30 trillion market, providing a larger potential investment pool for cryptocurrencies.
With more financial products, such as ETH ETF, entering the market, cryptocurrencies may gain wider acceptance, especially among traditional financial advisors and their clients. While the short-term trading volume of ETH ETFs may not immediately peak, in the long run, these products may attract more capital into the cryptocurrency market.
Appeal of Ethereum ETF to Different Investors
Eric expressed that he maintains 75% confidence in the approval of a Bitcoin spot ETF in 2023. He believes that the cooperation between the SEC and issuers demonstrates their willingness and openness. The market's response to this possibility may be very positive, as spot ETFs are seen as more direct and fair investment tools.
Institutional investors favor highly liquid ETFs because they can easily enter and exit without affecting the market. ETF trading is anonymous, without contractual constraints, and very flexible. During times of crisis, institutional investors know they can easily exit ETFs.
Retail investors may be more inclined to trade products with higher volatility, such as 2x leveraged Bitcoin ETFs. They enjoy taking risks and pursuing higher returns. Financial advisors may prefer to choose more stable, long-term, and low-cost ETFs provided by large institutions like BlackRock.
Even conservative investors may allocate a small portion of their funds to speculative investments, seeking higher returns. There is a high product-market fit between cryptocurrency ETFs and retail investors, and they are expected to attract a large number of retail investors.
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