The U.S. Securities and Exchange Commission (SEC) has received a surge of applications for Ethereum futures exchange-traded funds (ETFs) in the past week. According to the SEC website, 11 firms have filed for approval to launch ETFs that would track the performance of Ethereum futures contracts, which are derivatives that allow investors to bet on the future price of the second-largest cryptocurrency by market capitalization.
The applicants include well-known names such as VanEck, WisdomTree, Invesco, and ProShares. If approved, these ETFs would provide a new way for investors to gain exposure to the Ethereum market without having to buy or store the underlying asset. In the past week, 11 firms have filed their proposals with the regulator, hoping to launch the first ETF that tracks the price of Ether, the native cryptocurrency of the Ethereum network.
Ethereum futures ETFs are similar to Bitcoin futures ETFs, which were approved by the SEC in October 2021 and have attracted billions of dollars in inflows. These ETFs do not hold the underlying cryptocurrency directly, but instead invest in futures contracts that are traded on regulated exchanges such as the Chicago Mercantile Exchange (CME). Futures contracts are agreements to buy or sell an asset at a specified price and date in the future.
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The advantage of futures ETFs is that they can provide exposure to the cryptocurrency market without the need to deal with the technical and regulatory challenges of custody, security, and taxation. However, they also come with some drawbacks, such as higher fees, tracking error, and contango. Contango is a situation where the futures price is higher than the spot price, which means that the ETF has to pay more to roll over its contracts and maintain its exposure.
The 11 firms that have filed for Ethereum futures ETFs are:
Volatility Shares LLC, which filed for the Ether Strategy ETF (ETHU) on July 28.
ProShares Trust, which filed for the ProShares Ether Strategy ETF and the ProShares Inverse Ether Strategy ETF on August 2.
VanEck Associates Corp., which filed for the VanEck Ethereum Strategy ETF on August 2.
Bitwise Asset Management LLC, which filed for the Bitwise Ethereum Strategy ETF on August 2.
Grayscale Investments LLC, which filed for the Grayscale Ethereum Futures ETF (ETHG) on August 2.
Roundhill Investments LLC, which filed for the Roundhill Ether Strategy ETF on August 2.
Direxion Investments LLC, which filed for the Direxion Bitcoin Ether Strategy ETF on August 2.
Galaxy Digital Capital Management LP, which filed for the Galaxy Ethereum Futures ETF on August 3.
Kryptoin Investment Advisors LLC, which filed for the Kryptoin Ethereum Futures Trust on August 3.
WisdomTree Trust, which filed for the WisdomTree Ethereum Futures Fund on August 3.
Valkyrie Investments Inc., which filed for the Valkyrie Ethereum Futures Trust on August 4.
The SEC has not yet approved any of these applications, and it has up to 75 days to review them and make a decision. The regulator has been cautious about approving cryptocurrency-related products, citing concerns about market manipulation, investor protection, and compliance with existing laws. However, some analysts believe that the approval of Bitcoin futures ETFs has opened the door for other cryptocurrency futures ETFs, especially those based on Ether, which is the second-largest cryptocurrency by market capitalization and has a more diversified use case than Bitcoin.
Ether is not only used as a medium of exchange and store of value, but also as a fuel for running decentralized applications (Dapps) and smart contracts on the Ethereum network. Ethereum is also undergoing a major upgrade known as Ethereum 2.0, which aims to improve its scalability, security, and energy efficiency by transitioning from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) one. This could potentially increase the demand and value of Ether in the long term.
Ether is trading at around $1,841 as of August 4, down more than 250% year-to-date. The total market capitalization of Ether is about $305 billion, accounting for about 18% of the total cryptocurrency market. The CME launched Ether futures contracts in February 2021, and they have seen a steady growth in volume and open interest since then. As of August 3, there were about 5,800 Ether futures contracts outstanding on the CME, representing about $15 million in notional value.
If the SEC approves any of the Ethereum futures ETF applications, it could boost the liquidity and adoption of Ether as an asset class and provide investors with more options to gain exposure to the cryptocurrency market. However, investors should also be aware of the risks and challenges involved in investing in such products, such as volatility, regulatory uncertainty, and operational complexity.