As one of the most popular and influential cryptocurrencies in the world (second only to Bitcoin), Ethereum has built an impressive reputation as a multifaceted platform. Its native token ether (ETH), goes beyond just a medium of exchange. ETH is the fuel that enables an ecosystem of decentralized applications (dApps), smart contracts, NFTs, and more.
This crucial functionality led to Ethereum becoming the hub for innovation and transformation across finance, gaming, art, and social media in the crypto world.
Despite the attractiveness of the Ethereum ecosystem, investing in it remains a risky and challenging endeavor. Its token, ETH, is subject to the same volatility and regulatory uncertainty other cryptocurrencies face; this can be daunting if you’re new to crypto and unfamiliar with its technical aspects.
The solution? Get back to the basics of investing.
If you’re familiar with exchange-traded funds (ETFs), you’ll be happy to know Ethereum ETFs are a thing. Instead of tracking traditional assets like stocks and bonds, Ethereum ETFs monitor the performance of ETH and invest your funds accordingly.
So how will Ethereum ETFs shape the crypto landscape in the future? This article will show you how Ethereum ETFs are a safe and regulated alternative to investing directly in ETH, diversifying your portfolio without subjecting you to unnecessary risk.
Ethereum ETFs don’t reinvent the ETF wheel; they’re simply ETFs that track the price of ETH in the same way a regular ETF monitors traditional assets. By investing in an Ethereum ETF, you expose yourself to Ethereum without holding ETH yourself.
Here’s why investing in an Ethereum ETF may be a good idea for you:
The main difference is that ETH is a cryptocurrency that runs on a blockchain network, while an Ethereum ETF is an investment product that tracks the price of ETH.
By investing in ETH directly, you own and control your ETH and can use it for various purposes on the blockchain. This is not the same if you invest in an Ethereum ETF. As you don’t own or control any ETH, you only benefit from the price movements of ETH.
ETH and an Ethereum ETF also have different risk profiles. Investing in ETH is inherently riskier than investing in an Ethereum ETF, with some of the key risks including:
As for investing in Ethereum ETF, it is theoretically less risky, but you do face a different set of risks:
The answer is yes. However, they are only available in a few select markets, including Canada and Europe. Here are some of the existing Ethereum ETFs currently available:
In April 2021, Canada became the first country to launch Ethereum ETFs. Currently, there are four Ethereum ETFs listed on the Toronto Stock Exchange (TSX). These include:
Europe has several exchange-traded products (ETPs) that track the performance of ETH, such as exchange-traded notes (ETNs) and exchange-traded commodities (ETCs). Though similar to ETFs, ETNs and ETCs are different financial products:
Some Europe-based ETPs include:
The United States is relatively late to the ETH ETF scene, owing to the Securities and Exchange Commission (SEC) maintaining a punitive stance against crypto for a long time. Nevertheless, the SEC relaxed its stance in end-September 2023, approving three ETH futures ETFs in one go. They are:
Looking ahead, you can expect more Ethereum ETFs to be approved, as other US-based asset managers have filed for these. In September 2023, for example, ARK Invest and 21Shares collaboratively applied for regulatory approval for an Ethereum ETF. This fund intends to use Coinbase Custody Trust Company as a custodian.
The introduction of Ethereum ETFs will have a significant impact on the future of the crypto landscape.
They will increase the liquidity and efficiency of the ETH market by providing more trading options and opportunities for investors and traders. In turn, more mainstream investors will join the crypto party, given that Ethereum ETFs offer a low-risk alternative to gain exposure to crypto.
They will also likely introduce greater regulation to the crypto industry, as it needs to comply with the existing rules and standards of the securities market and the authorities to maintain the ETFs.
With the inflow of capital and talent to the Ethereum ecosystem, you can also expect an uptick in innovation and competition in the crypto space.
While the impact of Ethereum ETFs is largely positive, there are some key challenges and limitations they may run into. Among these is the inability of Ethereum ETFs to fully capture the potential and value of Ethereum as a platform for decentralized applications, smart contracts, and Web 3.0.
Ethereum ETFs may also be unable to reflect the true demand and supply of ETH, creating artificial scarcity or abundance due to their creation and redemption processes.
In the same light, Ethereum ETFs could also struggle to keep up with the rapid changes and developments of the Ethereum network, inevitably affecting its ability to accurately track the shifting prices of ETH.
Ethereum ETFs are also subject to more stringent regulatory uncertainties, delays, and interventions that could affect their availability in different markets.
Ethereum ETFs are a promising and exciting development for the crypto landscape, offering you a convenient and accessible way to gain exposure to ETH without owning or managing the coin itself.
Although their long-term impact remains to be seen, Ethereum ETFs are well on their way to inviting more people to join the Ethereum community and participate in its development. You could even find yourself using Ethereum ETFs as your entry point into crypto before investing directly into it.
When you’re ready, sign up to get your Bake account for an easy and efficient way to invest in ETH today!
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