The crypto market is at a crossroads following the SEC’s approval of spot Bitcoin ETFs. This regulatory body has already greenlit the Ethereum ETF creation, marking a significant shift towards greater acceptance of cryptocurrency investments. The industry eagerly awaits news of the launch of the first spot ETF products. They are expected to open new investment opportunities for individuals and institutional investors.
While spot Ether ETFs await issuer registration, ETH futures ETFs are currently accessible to investors for trading. This article will explore the distinctions between Ethereum futures ETFs and spot ETFs.
Understanding Ethereum and Ether
Nicknamed the “world computer,” Ethereum is an open-source, decentralized blockchain platform that supports dApps and smart contracts. Introduced by Vitalik Buterin in 2015, the protocol allows developers to build upon it. That results in a diversified ecosystem which includes NFTs, DeFi initiatives, and more.
With its PoS consensus, ETH, the native crypto of Ethereum, enables transactions, reimburses for computing services, and rewards users. ETH is the second most valuable cryptocurrency after Bitcoin. It has a market value of about $450 billion as of June 2024 and a price of $3,370. It has fluctuated a lot. ETH reached a high of $4,100 in November 2021 and a low of $1,100 in July 2022. It is still a well-liked asset for traders and investors.
Exploring Ether Futures Contracts
The popularity of Ethereum has increased demand for financial products that allow investors to profit from changes in Ether’s price. In response, futures contracts for ether have surfaced. These contracts are arrangements to buy or sell Ether at a predetermined price at a later time.
Futures trading is appealing for short-term, high-risk methods and volatility hedging since it permits speculation on Ether’s price without ownership. Leverage for increased gains (or losses) and the ability to short-sell it are the main advantages of this approach.
Major cryptocurrency exchanges provide ETH futures, including Binance, OKX, ByBit, KuCoin, and conventional platforms like CME Group. Perpetual contracts, which have no end date, are also commonly available.
Ethereum Futures ETFs and Its Benefits
Ethereum futures ETFs make investing in Ether possible without managing a cryptocurrency wallet or directly owning it. Exchange-traded funds are an easy way to diversify your portfolio. They are traded on stock exchanges and follow the performance of certain assets. Investors can profit from Ether’s price fluctuations by investing in an Ether ETF, a collection of Ether futures contracts. These ETFs operate like conventional ETFs, with shares managed by experts and traded on exchanges.
VanEck Ethereum Strategy ETF (EFUT), ProShares Ether Strategy ETF (EETH), Bitwise Ethereum Strategy ETF (AETH), and ARK 21Shares Active Ethereum Futures Strategy ETF (ARKZ) are a few well-known ether futures exchange-traded funds. These ETFs’ cost-effectiveness, accessibility, and regulatory compliance make them desirable.
Ether ETFs are governed by agencies such as the SEC. Unlike direct cryptocurrency investments, it guarantees a safe and secure investment environment. Investors can purchase Ether ETFs through conventional brokerage accounts rather than utilizing the intricate technicalities of cryptocurrency exchanges. In addition, Ethereum futures contracts are managed by qualified fund managers. It lowers operating expenses and renders Ether ETFs a reasonably priced investing choice.
Potential Risks and Limitations
Although Ether futures ETF provides a regulated and easily accessible way to invest in Ethereum, they carry a certain risk. Due to contango—a situation in which futures prices are higher than the spot price—these ETFs might not accurately reflect the actual price of an asset. These ETFs are riskier than traditional assets due to the market’s volatility, which includes Ether. As a result, they may not be appropriate for long-term holders and risk-averse investors.
Problems with liquidity can also occur because it might be challenging to buy or sell shares at desired prices. After all, Ether futures ETFs frequently have smaller trading volumes than Bitcoin ETFs. Additionally, investors looking for direct exposure to the asset may find futures ETFs less tempting in light of the recent approval of Ethereum spot ETFs.
How to Make an Investment
Take these actions to invest in Ether Futures ETFs and expose yourself to the Ethereum ecosystem. First, open a brokerage account with a bank, such as Fidelity, Charles Schwab, Vanguard, or Robinhood, that allows ETF trading. Make sure you finish the required KYC verification.
Next, look at the ETH ETFs that the brokerage offers. Examine each fund’s prospectus, holdings, fees, and risk profile to determine which best suits your investing objectives and risk tolerance. Once you have decided on an ETF, use your brokerage account to place a buy order. Depending on your strategy, you can use a limit or market order.
Lastly, keep a regular eye on the performance of your investment. Remember that contango and management costs can cause the fund’s share price to diverge from Ether’s market price. You may need to modify your position to achieve your investing goals and react to market conditions.
Comparing Futures and Spot ETFs
While spot ETFs allow direct ownership of Ether tokens and more closely monitor their spot price, futures ETFs give regulated exposure to Ethereum through trading futures contracts. Spot ETFs carry custody risks, such as the possibility of theft or loss due to hacking, even if they can be a more straightforward and affordable option to invest in Ether. Since futures ETFs don’t hold the underlying Bitcoin, they are free from these dangers. Though futures ETFs have lower regulatory requirements despite having more significant management costs from active trading, spot ETFs must clear more regulatory hoops before they can be approved.
Regulations, Taxes, and Future Outlook
The SEC controls ETF registration and approval, while the CFTC regulates derivatives markets. Ether futures ETFs are subject to both SEC and CFTC regulations. Investors can expose themselves to the cryptocurrency through these ETFs without actually holding Ethereum. However, investors must remain aware because the laws are constantly changing.
Ether futures exchange-traded funds have substantial tax implications. Certain ETFs with a C-corporation structure, such as the VanEck Ethereum Strategy ETF (EFUT), may provide tax advantages in the future. These advantages could include deducting losses from future gains and possibly lower payout tax rates. Investors should speak with tax professionals to fully grasp these consequences in light of their unique situation.
Conclusion
Ether futures ETFs, which provide a regulated means of investing in Ethereum’s growth, will become increasingly significant as the Ethereum network expands. However, the advent of spot Ether ETFs, which offer direct exposure to Ether, could impact futures ETFs. Despite these concerns, they are still a valuable resource for investors wishing to interact with Ethereum.
