Hello everyone
Ethereum Futures ETFs have started trading in the United States (for the first time). Is this actually bullish for the crypto markets or is it all just a non-event?
Let’s assess the relevance of Ethereum Futures ETFs and also get a bit of an understanding of what an ETF even is!
What is an ETF?
The basics:
An ETF is an investment fund traded in the stock market.
It tracks the price of an asset (such as Ethereum).
This allows investors to invest in Ethereum without buying real ETH.
They buy shares in the ETF and therefore ownership in a pool of Ethereum that is held by the ETF.
So, what’s all the hype about?
An ETF is a pretty big deal… Mostly because of accessibility.
There remain huge barriers to entry into the crypto market (operating an exchange, hacks, passwords, security etc.).
An Ethereum ETF lets ‘normies’ invest in ETH by reducing some of the risks associated with owning crypto directly.
What Happened This Week With Ethereum ETFs?
On Monday, a total of nine Ethereum ETFs started trading on the CME, issued by:
ProShares (3x)
Bitwise (2x)
Valkyrie
VanEck
Kelly
Volshares
NOTE: of the nine, five exclusively track Ethereum futures, while the other four are a mixture of Ethereum and Bitcoin futures (more on futures later…)
Is This Actually Bullish For The Crypto Markets?
Admittedly, the ETFs got off to a slow start… without much trading volume. In total, all nine experienced less than $2 million worth of trading volume as of around midday Eastern Time on the first day of trading.
“Pretty meh day of volume” - Senior Bloomberg ETH Analyst
Particularly if we compare this to when Bitcoin ETFs first started trading on the NYSE. In 2021, the ProShares Bitcoin Strategy ETF traded nearly $1 billion in shares in one day!
Albeit, this was at the height of the bull market (with Bitcoin trading over $60k), so it is a bit of an unfair comparison. `
Perhaps whether this is really bullish or not will have to do with the extent to which it helps or hinders the approval of a spot crypto ETF.
Important Distinction: Spot and Futures ETFs
To date, all crypto ETFs that have been approved are futures-based ETFs. That includes the few Bitcoin ETFs that are available in the market and all the Ethereum ETFs that just came through.
Spot Crypto ETF → ETF invests directly in the asset.
Futures Crypto ETF → ETF invests in futures contracts as an alternative.
A spot ETF actually provides exposure to cryptocurrency whereas a futures ETF is more like a bet on a later price of the asset.
A futures ETF does not involve investing in crypto at its spot price (the way you and I may do so on an exchange). That’s why for many people, it doesn’t count as ‘actual’ crypto adoption.
To repeat, no spot crypto ETFs have been approved so far. Albeit not for a lack of trying! A combination of TradFi and crypto providers are in discussions with the SEC to try to get approval on a spot crypto ETF.
In my opinion, Ethereum Futures ETFs are relevant in so far as they get us one step closer (hopefully) to spot crypto ETF approval. That would be the real win.
All the best,
KimTalksCrypto
Disclaimer: This newsletter is written and distributed for educational purposes only. All views expressed are my own. Nothing in this newsletter is to be taken as financial advice or recommendation for any investment.
A great write up! Thanks Kim. Enjoyed reading this 👍🏼