:The first U.S. exchange-traded funds (ETFs) tied to the price of ether, the world’s second-largest cryptocurrency after bitcoin, began trading on Tuesday, in another watershed event for the crypto industry’s push to go mainstream.
Ether ETFs from VanEck, Franklin Templeton, Fidelity, 21Shares and Invesco began trading on Cboe, while one from BlackRock began trading on the Nasdaq. Products from Bitwise and Grayscale Investments also started trading on the New York Stock Exchange.
Following the launch of nine U.S. spot bitcoin ETFs in January, the ether products mark another win for the cryptocurrency industry’s campaign to push digital assets into the broader financial sector, although the products are unlikely to garner the same volume of inflows, analysts said.
“Although ether ETFs may not attract as much inflow as bitcoin ETFs, they represent an important step in the development of the cryptocurrency market,” said Grzegorz Drozdz, market analyst at investment firm Conotoxia Ltd.
Market participants see the introduction of the ETFs as significant for the industry’s longstanding effort to classify ether as a commodity rather than a security.
While the Securities and Exchange Commission has not explicitly said ether is a commodity, the new products are defined in filing documents as commodity-based trusts.
The bitcoin ETF launches were the culmination of a decade-long tussle with the SEC, which had rejected the products due to market manipulation concerns.
The agency was forced to green-light the ETFs after losing a court challenge brought by digital asset manager Grayscale Investments, although it warned when approving them that the products were still highly risky.
The launch was one of the most successful in the ETF market’s history with the products attracting $33.1 billion in net inflows as of the end of June, according to Morningstar Direct data.
Bitcoin ETF issuers competed hard on fees, with many firms offering to waive fees entirely for a certain period of time.
The ether ETF fees range from 0.19 per cent for Franklin Templeton’s ether ETF to a high of 2.5 per cent for Grayscale’s ethereum trust, which it is converting into an ETF, according to their public offering documents. The rest cluster around 0.25 per cent.
Overall, the fees are comparable to the bitcoin products, although issuers are offering fewer waivers.
Grayscale is rolling out a “mini” version of its ether ETF with a fee of only 0.15 per cent.
The price of ether fell after the products started trading, and was last down 1.18 per cent at $3,448.84, tracking a similar decline in bitcoin.
While estimates on demand for the ether products vary widely, Galaxy Research – whose sister company Galaxy Asset Management has a pending ether ETF with Invesco – has projected that the ether ETFs could attract monthly inflows of $1 billion.
“Overall, market participants expect strong interest in ETH Spot ETFs and significant inflows in the first 3-6 months post-launch,” Matteo Greco, research analyst at Fineqia International, wrote in a note. He added that demand for the ether ETFs will be crucial in ascertaining investor appetite for digital assets beyond bitcoin.
A major issue for some investors is the SEC’s exclusion of the “staking” mechanism in the ether ETFs, a key feature on the ethereum blockchain that allows users to lock up their tokens for a certain period of time in exchange for yield. As currently constructed, the SEC will only allow the ETFs to hold regular, unstaked ether.
Issuers began filing for the ether ETFs in September. Executives initially had low hopes that the SEC would approve the products after discouraging meetings with officials. But the agency surprised the industry in May when it approved rule changes required for exchanges to list the products, the first of two key regulatory hurdles.
SEC Chair Gary Gensler last month told Reuters the Grayscale ruling had influenced his thinking on approving the ether products, because the underlying market circumstances were similar.
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