Summary Approval of second crypto spot ETF six months after the first, signals regulatory acceptance of crypto assets. The newly-launched spot Ethereum ETFs follow the fee structure and custody choices of their respective spot Bitcoin ETFs. Bitwise Ethereum ETF stands out with its commitment to the Ethereum ecosystem, transparency, and competitive fees, attracting potential growth. Launching the spot Ethereum ETFs does not eliminate Ethereum's inherent volatility. The ETFs, however, bolsters ETH's upside potential. It's no longer news that the spot Ethereum ( ETH-USD ) ETFs have gained the SEC’s approval and have started trading on various exchanges. Approval of a second crypto spot ETF after the first, just about six months apart, shows the slow but undeniable regulatory acceptance of crypto assets. Kucoin The funds are drawing from the spot Bitcoin ( BTC-USD ) ETF playbook in terms of fee structure and early fee waivers to woo investors. With this pattern we are witnessing, the spot Bitcoin and Ethereum ETFs will likely become the “template” for future crypto ETFs in terms of fee structure and custody choices. Just like the spot Bitcoin ETFs, the nine spot Ethereum ETFs have maintained their asset custody choices, fee structures, and initial fee waivers, save for Grayscale which created a spin-off of the converted Grayscale Ethereum Trust ( ETHE ). The spin-off fund is called the Grayscale Mini Ethereum ( ETH ). The Grayscale Mini Trust currently has the lowest fee among the spot Ethereum ETFs at 15 bps. Both of Grayscale’s ETFs use Coinbase ( COIN ) as their asset custodian. Franklin Ethereum ETF ( EZET ), Bitwise Ethereum ETF ( ETHW ), 21Shares Core Ethereum ETF ( CETH ), iShares Ethereum Trust ( ETHA ), and Invesco Galaxy Ethereum ETF ( QETH ) all use Coinbase for asset custody. VanEck Ethereum ETF ( ETHV ) asset custodian is Gemini, while Fidelity Ethereum Fund ( FETH ) is sticking to a self-custody approach. Highlights from the First Spot Ethereum ETFs Trading Day One of the vital lessons from the spot Bitcoin ETFs is that the expense ratio is one of the determining factors in investors’ choice of spot ETFs. Grayscale retained its 2.5% fee in its converted spot BTC ETF fund and has seen the most outflows and narrowed AuM since its launch. Drawing lessons from the BTC ETF, Grayscale created the 10% mini fund spin-off with much lower fees to attract investors seeking affordable entry points. The spot Bitcoin ETFs have also shown the yearning for crypto exposure among institutional and traditional retail investors. On the first day of the Bitcoin ETF launch, trading volume was $4.46 billion and inflows were around $655 million. In just a little over a week after launch, the Bitcoin ETFs surpassed traditional silver ETFs market cap, becoming the second largest ETF commodity by AuM in the U.S. Spot Ethereum ETF first trading day data (Farside Investors) The spot Ethereum ETFs have equally performed well from the get-go Yesterday July 23 (the first trading day), the spot Ethereum ETFs recorded around $1 billion in trade volume , about 22% of the spot Bitcoin ETF's first trading day volume. Grayscale’s ETHE accounted for nearly half of the volume on the first trading day. Remember that Grayscale’s converted fund was created in 2017 and before the spot ETF conversion, the fund held about 2.2% of the total Ethereum supply, worth around $9.6 billion. This easily explains why ETHE saw about 50% of the volume. ETHE had traded on a discount to NAV earlier this year, trading around a 24% discount to NAV in April. Investors are likely seeking arbitrage gains while reallocating funds out of ETHE into their preferred spot ETF now that there are a handful of options for direct Ethereum exposure. ETHE recorded $484.1 million of outflows on the first trading day. The spot Ethereum ETFs, however, saw $107 million net flows on the first trading day despite ETHE massive outflows. ETHA led the inflows with $266.5 million and the ETHW recorded the second largest inflows at $204 million. ETHW: Bitwise Ethereum ETF is my Top Pick Bitwise is not a newbie when it comes to launching and managing crypto-related ETPs, having launched a few crypto ETPs, including the Bitwise Crypto Industry Innovators ETF ( BITQ ), Bitwise 10 Crypto Index Fund ETF ( OTC:BITW ), Bitwise Web3 ETF ( BWEB ), and Bitwise Ethereum Strategy ETF ( AETH ), and thus earning the “crypto specialist” status. Bitwise has maintained a fee structure in ETHW similar to the fee structure of its spot Bitcoin ETF at 20 bps and an initial six-month fee waiver. Transparency has become a key focus and one of the main selling points of blockchain technology, as the movement of funds is easily traced on the blockchain. Among the Ethereum ETF funds, Bitwise is the first to publicly publish the on-chain addresses that will hold the ETHW ETF funds; more so, using the Ethereum Name Services alias addresses. This shows beyond-the-surface commitment to the Ethereum ecosystem. Additionally, Bitwise has pledged 10% of its fees for the open-source development of Ethereum. I believe these early ecosystem commitment moves will create strong brand differentiation for the Bitwise ETF and potentially bolster investor appeal. Based on this level of commitment to the Ethereum ecosystem coupled with the competitive fee of the ETHW ETF, I see a situation where crypto-focused hedge funds in particular will naturally gravitate towards Bitwise’s spot Ethereum ETF. Crypto-focused hedge fund Pantera Capital has indicated an interest in purchasing $100 million of the Bitwise spot Ethereum ETF shares. I think that is just the tip of the iceberg. Bitwise's commitment to the Ethereum ecosystem growth will attract more crypto-focused hedge funds over time. Crypto-focused hedge funds could likely choose to go the “values-based” investing route, aligning their investments with the principles and growth of the Ethereum ecosystem. It all Hinges On ETH Yes. The success of the spot Ethereum ETFs hinges to a very large extent on the success of the underlying asset Ethereum. BTC Spot ETF Aggregate Inflows vs BTC Price (Bloomberg) The spot Bitcoin ETFs have shown us that demand for the ETFs has created a buying pressure on Bitcoin and the ETF inflows have strongly correlated with Bicoin’s price movement. As seen in the preceding chart. The first trading day of the spot Ethereum ETFs could be considered very impressive, with $107 million in net inflows and $1 billion cumulative trade volume. The Bitwise CIO refers to the first trading day as “exceeding expectations.” Ethereum is currently the only altcoin with a spot ETF approval and I think in the near term, there will likely not be another altcoin spot ETF approval due to the ambiguity in the regulatory classification of most altcoins as securities or commodities. This gives Ethereum a market advantage in the meantime. This also means that the demand for Ethereum ETFs will likely grow as institutional investors seek to diversify between the only two available crypto ETFs - Bitcoin and Ethereum spot ETFs. In a piece I wrote yesterday covering Ethereum, I went into detail about how the spot Ethereum ETFs serve as a major catalyst for Ethereum moving forward. Data compiled by Galaxy shows the existing institutional demand for existing Bitcoin ETPs (excluding spot ETFs) in the U.S. to be about 3.24x of ETH's ETP demand. In other words, ETH sees about 31% of Bitcoin’s demand. Plugging this ETP demand data into the ~$17 billion inflows the spot Bitcoin ETFs have recorded so far in about six months, suggests that the spot Ethereum ETFs could potentially see around $10.5 billion of net inflows per year, or $900 million per month. I arrived at this estimate by first annualizing the ~17 billion six-month net inflows of the spot Bitcoin ETF, which is around $34 billion yearly. Considering Ethereum’s ETP demand is around 31% of Bitcoin’s, that gives a rough estimate of $10.5 billion - if the institutional demand for ETPs mirrors the demand for spot Ether ETF. Excerpt from my latest Ethereum coverage Risks The launch of the spot Ethereum ETFs doesn't eliminate the inherent volatility of the underlying asset ETH. Grayscale’s converted ETHE fund still commands a significantly high AuM. As witnessed on the first trading day, the fund could see serious outflows. Considering the high AuM, the ETHE shares could become an overhang. Takeaway The spot Ethereum ETFs have been well received and performed beyond expectations on the first trading day. The spot ETFs place Ethereum at an advantage over major altcoins for now. The buying pressure that we’ve seen on BTC because of the spot Bitcoin ETFs, demand would likely be witnessed in Ethereum also due to its spot ETFs. The nine newly-launched spot Ethereum ETFs all have unique prospects, ranging from competitive fees to self-custody to high AuM. However, I consider the Bitwise Ethereum ETF a top pick because of its brand differentiation approach, its day-1 commitment to transparency, and its commitment to the progress and development of the Ethereum ecosystem. ETHE will potentially attract crypto-focused institutional investors and see the fund grow its AuM immensely. ETH has upside potential, and so do the spot Ethereum ETFs. Bitwise’s Ethereum ETF is a stand-out ETF and a top pick to gain direct exposure to ETH’s imminent upside.
