What impact will the approval of Ethereum futures ETF by the US SEC have?
How will the approval of Ethereum futures ETF by the US SEC impact?
Original | DLNews
Compiled by | Wu Blockchain
● The U.S. Securities and Exchange Commission is about to approve Ethereum futures ETF.
● In July, investors traded Ethereum futures contracts worth $12.5 billion.
● Futures products in the United States may increase demand for Ethereum.
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Although Bitcoin futures ETFs have existed for nearly two years, Ethereum futures ETFs have yet to be launched—this situation may soon change.
On Thursday, Bloomberg reported that the U.S. Securities and Exchange Commission is preparing to approve the sale of ETH futures ETF. ETH is the token used in the Ethereum blockchain network and is also the second largest cryptocurrency by market capitalization.
This is good news for the dozen or so companies that have been eager to launch Ethereum futures ETFs. These include Bitwise, Roundhill, and ProShares, among others. Bloomberg reported that some funds may receive approval as early as October. In addition, in order to quickly gain market share, funds seeking investors may significantly reduce management fees.
Ethereum futures ETFs may also bring new hope to DeFi investors who have frequently encountered hackers and thefts in the cryptocurrency field this year. According to K33 Research, futures products may “increase the influx of U.S. demand for Ethereum.” This means more trading volume and more activity.
The emergence of ETH futures ETFs may also enhance people’s confidence that the SEC is open to the numerous applications for Bitcoin spot funds submitted by asset management companies such as BlackRock.
This will be a significant event because ETFs provide investors with an affordable way to bet on the performance of stocks, commodities, and perhaps cryptocurrencies. In addition, ETFs traded in the securities market often have high liquidity.
People hope that Bitcoin ETFs will eventually bring this asset class into the mainstream and drive other cryptocurrencies.
Unlike spot ETFs, futures ETFs will provide investors with an opportunity to bet on what the price of ETH will be in a few months. These products are technically derivatives tailored for institutional investors rather than retail traders.
That is why the SEC and Gary Gensler may approve their sale even if the agency continues to review applications for Bitcoin spot ETFs.
Analysts say that although ETH supporters may like this news, the futures ETF for the token may follow the same trajectory as Bitcoin ETFs. This may cause concerns for investors.
Nate Geraci, President of investment advisory firm ETFStore, told DL News that after two years of launching, the total assets under management of Bitcoin futures-related ETFs are still less than $1.5 billion.
Despite this, the market for Ethereum futures contracts remains strong. According to Coinglass data, in July, investors traded over $12.5 billion worth of Ethereum futures on the Chicago Mercantile Exchange. This may be far lower than the record high of $34 billion in November 2021, but monthly trading volumes this year have consistently exceeded $10 billion.
SEC approval is likely to spark a competition among asset management companies to attract investors. This means a fee war is on the horizon.
Roundhill is an asset management company vying for an Ethereum futures ETF and could capture a significant market share if its fees are attractive. Bloomberg Intelligence analyst James Seyffart tweeted that the asset management company disclosed a management fee of 0.19% for its fund.
“This is very low compared to ProShares’ Bitcoin futures ETF with a 0.95% fee,” Seyffart said. It may be “far lower” than VanEck’s Bitcoin futures product, which charges a 0.76% fee.
Geraci from ETFStore stated that he believes the fee will be below 0.4%, but it could be “far lower than that” in reality. “The fee competition will be fierce,” he concluded.
Not as Simple as Bitcoin
Geraci stated that compared to Bitcoin futures, it is crucial for investors to evaluate the scale of an Ethereum futures ETF. Ethereum is not as simple as Bitcoin.
As a key part of the Ethereum network and extending to much of the DeFi ecosystem, Ethereum is more like a software game. Its value proposition lies in providing financial utility to users, whether for payments, loans, loan collateral, or purchasing NFTs. In contrast, Bitcoin is now widely seen as a speculative asset.
CoinShares stated last year that investors should approach these two digital assets in completely different ways.
“Ethereum should be evaluated with a certain utility demand, while Bitcoin is a currency that should be evaluated through a currency demand model,” wrote research assistant Marc Arjoon.
In other words, Arjoon believes that Ethereum is more closely aligned with technology companies rather than Bitcoin. Therefore, as investors understand its complexity, its correlation with Nasdaq could “potentially surpass Bitcoin over time.”
The conclusion is that the trend of Ethereum futures ETFs may decouple from Bitcoin futures products. Another consideration is that if the SEC approves a spot Bitcoin ETF, assets in the futures market may shift significantly to the spot market.
“I believe investors want something real,” said Geraci, referring to spot ETFs.
A Suitable Benchmark
Analysts have been attempting to estimate the size of the Ethereum futures ETF market. Bitcoin’s market cap is around $500 billion, while Ethereum’s market cap is slightly less than half of that. Geraci said, “I think this is a good benchmark for predicting the size of the Ethereum futures ETF.”
Market maker GSR’s research analyst Matt Kunke is also making estimates. “We expect the upper limit of demand to be around $1 billion,” he told DL News. He added that this is just a small part of the expectations for spot ETFs by market makers.
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