Five spot ether exchange-traded funds (ETF) are slated to begin trading on the Chicago Board Options Exchange. They follow the nine bitcoin ETFs that began selling earlier this year as the only two cryptocurrency plays available to investors on the regular stock market.
The new ETFs include the 21Shares Core Ethereum ETF, Fidelity Ethereum Fund, Invesco Galaxy Ethereum ETF, VanEck Ethereum ETF, and Franklin Ethereum ETF. To jumpstart the introduction, virtually all of the ETH ETF issuers have announced plans to temporarily waive or discount their fees. The discounts run from 50% fee reductions to full waivers and will be in place anywhere from six months to a year.
The bitcoin ETFs have been highly successful, with more than $17 billion in net inflows since their introduction. The ether ETFs will face an uphill climb in replicating that success, with some industry experts expecting them to garner anywhere between 10% and 20% of the inflows garnered by the bitcoin ETFs.
As a less widely traded asset, ether is expected to endure more price volatility than bitcoin. As the world’s second-largest cryptocurrency, ether has a market cap of just over $400 billion, while bitcoin’s market cap is well over $1 trillion. Analysts looking at the ether ETFs are expecting significant price fluctuations after the introduction. For instance, data from research firm Deribit shows that the implied volatility of ether options rose from 56% to 70% in the past week.
Not Mined but Staked
One key difference between the two cryptocurrencies is that bitcoin is mined, while Ethereum has switched to staking. In September 2022, Ethereum replaced its energy-intensive Proof-of-Work (PoW) mining mechanism with a Proof-of-Stake (PoS) mechanism rooted more in financial transactions. Technically speaking, Ethereum is the blockchain platform, while ether is the cryptocurrency derived from that platform.
This change transformed how new Ethereum is created, making traditional mining obsolete. Staking involves committing ether as collateral to validate transactions on the Ethereum network, which allows you to earn more ether.
One upshot of the ether ETFs is that they will almost certainly increase demand for the cryptocurrency, potentially leading to a severe supply shortage. The Ethereum Exchange Reserve, which tracks the amount of ether available on cryptocurrency exchanges, is already at multi-year lows.