Discover how Ethereum’s latest development could transform your crypto-investing strategy.
Bitcoin (BTC 1.78%) investors might recall a fine Wednesday last January when the first exchange-traded funds (ETFs) based on spot Bitcoin prices hit the Street.
It was a memorable moment that was years in the making.
How Bitcoin ETFs reshaped the market
The Winklevoss twins of Facebook fame filed the first application for a spot Bitcoin ETF way back in 2013. The Securities and Exchange Commission (SEC) rejected that application five years later, but the idea of spot Bitcoin ETFs persisted.
The SEC eventually yielded to investor pressure and a torrent of ETF applications, approving the first funds based on Bitcoin futures in 2021. Proper spot-price ETFs followed on Jan. 10, 2024.
Led by the popular iShares Bitcoin Trust (IBIT 5.32%) and the converted mutual fund Grayscale Bitcoin Trust (GBTC 5.18%), 11 cryptocurrency ETFs entered the market that day. They have all gained roughly 40% since then, well ahead of the S&P 500 index’s 14% gain. Illustrious growth investor Cathie Wood expects these funds to invite tons of institutional investors into the crypto market, driving Bitcoin prices much higher over time.
And now it’s Ethereum‘s (ETH 0.77%) turn.
The SEC finally approved some spot Ethereum ETFs this week, and they should have a similar long-term effect on the second-largest cryptocurrency.
The path to Ethereum ETFs
As with the Bitcoin ETFs, the road to Ethereum ETFs was a long one. Grayscale started kicking the tires of an Ethereum ETF in 2017, launching the Grayscale Ethereum Trust (ETHE 4.84%) as a mutual fund in the summer of 2019. Other firms followed along slowly. Futures-based funds came first, and the applications for spot-priced Ethereum ETFs started piling up last fall.
The SEC took one important step in May, generally allowing various exchanges to trade ETFs based on Ethereum as a commodity. Each application still had to be reviewed in detail, delaying the launch of actual ETFs by a couple of months.
But the work is done, and the SEC has approved nine spot Ethereum ETFs. Grayscale’s mutual fund has been converted into a more investor-friendly ETF with $7.5 billion of assets under management (AUM).
The iShares Ethereum Trust ETF (ETHA 4.94%) is an early front-runner, of course, given the iShares family’s household-name status and the backing of financial giant BlackRock. Everyone is offering fee discounts in order to boost early investor interest.
So it’s a pretty direct rerun of the Bitcoin-based ETF launch in January. The iShares Bitcoin fund amassed $10 billion of invested funds faster than any ETF in the history of exchange-traded funds. Together, the 11 Bitcoin ETFs now hold $60 billion of cryptocurrency assets. And like I said, they have delivered market-beating returns, perfectly tracking the underlying commodity’s performance over the last six months.
Market turbulence and future prospects
The Ethereum ETFs launched in a tumultuous market week. The stock market is trending down, driven by political commotion, surprising economic reports, and unpredictable results in the just-started earnings season. The tumult spilled over into the crypto market as well, driving Bitcoin and Ethereum sharply lower. The new ETFs haven’t provided much investor value so far.
Then again, the same thing happened in January. Bitcoin and its brand-new ETFs dipped as much as 16% in the first three weeks before getting their sea legs.
If I might bring Cathie Wood back into the analysis, she didn’t mind the initial Bitcoin price drops at all.
“We are very excited that Bitcoin now is available in an ETF wrapper, and therefore is very accessible at very low prices,” Wood said in a CNBC interview in late January, near the bottom of the post-ETF-launch price drop. “We think this is one of the most important investments of our lifetimes.”
The same logic should apply to this week’s Ethereum ETF launches, too. If Bitcoin is the digital equivalent to wealth-carrying physical gold, Ethereum’s smart contracts look ready to revolutionize financial systems and how ownership of real-world assets is tracked.
Ethereum ETFs provide a more secure and familiar way to invest in cryptocurrencies. By investing through established financial institutions, investors can benefit from the protections and oversight that come with regulated markets, reducing the risks associated with direct crypto ownership. And in the long run, inviting large groups such as retirement accounts and professional money managers to the crypto market can only be good for the Ethereum cryptocurrency’s long-term value.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Bitcoin, Ethereum, and Grayscale Bitcoin Trust (BTC). The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Meta Platforms. The Motley Fool has a disclosure policy.