TL;DR
The first Ethereum Futures ETFs in the United States launched in the first week of October 2023. Even though trading volumes have been low, the fact that institutions now have their own piece of ‘money lego’ to get access to Ethereum is bullish. Sure, these futures products are far from ideal, but they are a start.
In the list of allowed ETFs, we see traditional institutions such as VanEck. But we also see Bitwise, a more crypto-native institution. In all cases, the funds let investors buy shares, which are matched by Ether stored at a regulated crypto custodian.
Some only hold Ether futures and some hold a mix of BTC and ETH exposure. One of those, Valkyrie’s fund, was for two years a BTC-only fund Bitcoin Strategy ETF (BTF).
Why were so many Ethereum ETFs launched simultaneously? According to Eric Balchunas, it may have had to do with the American Securities and Exchange Commission (SEC) not wanting to give one ETF the unfair advantage of a head start. This head start matters in trading because ‘liquidity begets liquidity’. Once a fund has established itself as dominant, it will become a self-fulfilling prophecy: traders need volume and will disproportionally flock to the winner.
Low Trading Volumes
So, was the launch a success? In one sense, no. In total, the funds saw trading volumes of $1.92 million in their first day of trading. The winner was ProShares Ether Strategy ETF with more than 800k volume.
Indeed, I hear you say, a small altcoin does those figures…. you are factually right. For example, Aptos on Coinbase had the same 24-hour volume the day before writing this article. So, this is somewhat disappointing.
Sentiment and volumes are low across crypto markets. Should these Ethereum funds have been launched in 2021, we would likely have seen different numbers. The Bitcoin Futures ETFs traded a billion on their first day in October 2021….
This difference can’t only be attributed to market conditions though. It also has to do with how institutional investors view Ethereum. While crypto enthusiasts like you and me take Ethereum very seriously, for institutional investors Bitcoin is still really only what they look at, if they do at all.
But – and this is the important symbolic significance of these Ethereum Futures ETFs launches – they will mark the beginning of the process of legitimizing Ethereum in the eyes of institutional investors.
Also, it gives extra credibility – it even seems like an implicit admission of the SEC – that Ethereum is a commodity and not a security. Let’s zoom in a bit on these terms: commodities, the funny term ‘futures’ and ‘ETFs’.
The Origin and Use Case of Commodity Futures
Let’s take a step back. Commodities such as corn, wheat, and coffee beans have been traded since the dawn of human civilization. Later came natural gas and oil. Originally, most trading would have been on physical markets, where products changed hands on the spot. We still use the term spot markets.
But commodity markets have evolved. Both buyers and producers would want to think ahead. A producer of corn syrup will plan its production schedule without being able to store a gazillion tons of corn in their warehouses. But they do want…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
