Investors are eagerly awaiting the US launch of exchange-traded funds tied to the spot price of ether, the world’s second-largest cryptocurrency, on Tuesday. However, the sentiment towards these ETFs is more cautious and divided compared to the excitement that surrounded the debut of bitcoin ETFs earlier this year. It is expected that ether ETFs will attract about 25% of the flows that bitcoin ETFs did, according to some estimates.
One major concern for investors is the exclusion of the “staking” mechanism in the SEC-approved ether ETFs. Staking is a process on the Ethereum blockchain that allows users to earn rewards by locking up their ether to help secure the network. The SEC’s decision to exclude staking from the ETFs means that investors will not be able to benefit from the additional yield that staking provides, which is a significant drawback for some.
Despite the exclusion of staking, some investors believe that they can earn better returns by staking their ether outside of the ETF and collecting the rewards, rather than paying fees and holding it in the ETF. This has led some asset managers, such as CoinShares and Gray Digital, to opt out of participating in the launch of ether ETFs until staking is included. They believe that staking will eventually be added to the ETFs in the future.
Chanchal Smadder, head of product at ETC Group, likened holding the ETF without the staking yield to owning a stock without the right to dividends. Demand for staked ether ETPs, which are similar to ETFs, has been higher than for unstaked ones, with significant inflows into the staked funds this year. However, there are risks associated with staking, including illiquidity and potential delays in withdrawing staked ether from the network.
Overall, investors see the launch of ether ETFs as a significant development in the crypto space, providing access to the Ethereum blockchain and its underlying applications. While the initial flows into ether ETFs may not match those of bitcoin ETFs due to ether’s smaller market capitalization, there is optimism about the long-term value and potential growth of the ETFs as Ethereum adoption continues to expand. With the institutional interest in the crypto market growing, the launch of ether ETFs marks a milestone in the evolution of digital assets.
