Investors and industry leaders are no longer interested in Bitcoin exchange-traded funds (ETFs) after they’ve been deemed inadequate in the eyes of the U.S. Securities and Exchange Commission. Applications aren’t sufficiently clear or comprehensive. By contrast, everyone waits with eager interest for regulatory approval for Ethereum futures ETFs, which provide direct exposure to cryptocurrency futures contracts rather than ensuring direct investment in the asset class. If approved, various offerings could go live as soon as October 2023. Countless applications from different firms have been filed until the present time. Previously, the SEC has seldom authorized ETF applications tracking Ethereum futures contracts, but no one knows what the future holds.
So, What Does an Ethereum Futures ETF Do, Exactly?
An Ethereum futures ETF issues publicly traded securities offering exposure to the price movements of Ethereum futures contracts. Anyone can invest in the futures contract of the industry’s second-largest cryptocurrency by market capitalization on the Chicago Mercantile Exchange instead of directly investing in the underlying asset. An investment company creates a subsidiary acting as a commodity pool, which in turn trades Ethereum futures contracts to imitate the spot price of Ethereum. The underlying asset in the futures contract is Ethereum (what else?), and the contract is held at a recognized exchange.
Most futures contracts are standardized, so they’re subject to general rules and regulations when it comes to trading commodities. You can buy or sell the underlying asset at some point in the future, but you don’t enjoy ownership of that asset. The SEC regulates ETFs under the exact same requirements as mutual funds and unit investment trusts. You can buy and sell ETF shares through broker-dealers at market-determined prices, but attention needs to be paid to the fact that regulation doesn’t translate into risk-free. The risks (and returns) OF Ethereum futures ETFs are nothing like the risk of buying Ethereum on the spot market or when trading Ethereum futures.
Many Entities Have Filed Applications with The SEC Following the Bitcoin Spot ETF Hype
The arrival of Ethereum futures ETFs would open the doors to a new wave of investors, ushering in billions in demand. If you’re involved in cryptocurrency, chances are you’ve already heard about Bitcoin spot ETFs. Corporations have struggled for years to make this vision come to life, but the SEC has thwarted any attempt. The main difference between a Bitcoin futures ETF and a Bitcoin spot ETF lies in the fact that traders would, in effect, own Bitcoin, trading the underlying asset on their own terms. Regrettably, the SEC has expressed concerns over filings for Bitcoin spot ETFs, so all the hype is over.
All hope isn’t lost. As mentioned earlier, different entities have filed with the SEC for Ethereum futures ETFs, including but not limited to Volatility Shares, Bitwise, Roundhill, VanEck, and Proshares. The proposed ETF by Proshares aims to offer investors exposure to both Bitcoin and Ethereum, ensuring capital exposure through managed exposure. The investment objective is non-fundamental, which basically means that it can be modified by the Board of Trustees in the absence of approval from the fund’s shareholders. Suppose the SEC doesn’t deny any of the applications. In that case, the Ethereum futures ETFs will be inaugurated 75 days from the filing date.
Some Crypto Advocates Want Ethereum Spot ETFs, But Others Aren’t So Sure
As indicated previously, futures ETFs differ from spot ETF products. Ethereum futures ETFs don’t involve the purchase of Ethereum at the current price. They just streamline the process and make it possible for investors to bet on the cryptocurrency market, even if they decide to short it or not. A futures contract can be defined as an agreement between traders to acquire Ethereum at an agreed price, no matter what happens before that date. Once the agreement is settled, traders move into the next contract. Many investors aren’t comfortable investing directly in Ethereum due to its high volatility.
Ethereum spot ETFs track the price of Ethereum and allow investors to hold Ethereum within the fund. The fund managers are actively involved in the process, so the ETFs enjoy more credibility among investors. Ethereum spot ETFs don’t yet exist, with companies proposing several concepts to the SEC over the years. The latest rush of Ethereum futures ETFs shows that there’s no better time than now. An application to launch an Ethereum spot ETF could come in the following weeks. Just think about it. If one person starts the process, others will naturally follow, not wanting to be left behind.
Ethereum Futures ETFs Have A 75% Chance of Approval In 2023
According to the analysts at Bloomberg, applying for an Ethereum futures ETF doesn’t mean approval is guaranteed. More exactly, there’s a 75% chance that the SEC will approve the recent filings, as it appears to change its stance towards cryptocurrency. James Seyffart and Eric Balchunas strongly believe that the SEC will have a hard time in court rejecting Ethereum futures ETFs after having approved standard and leveraged Bitcoin futures ETFs. In spite of mounting optimism, it remains to be seen what conclusion the SEC will arrive at. Let’s not forget that the regulatory commission has never said yes to ETFs that track futures contracts before.
Investors and members of the cryptocurrency community should resist speculation and await the outcome of the SEC’s ruling. Whatever the SEC decides, it’s likely to have an impact on the attractiveness and accessibility of cryptocurrency investments, notably for institutional investors. Institutions have faith in the long-term value of blockchain technology and digital assets, so their allocations will most likely increase. To enable suitable safeguards, investment time horizons have been extended so that most organizations can plan to scale investments. Institutional investors see Ethereum futures ETFs as highly promising, needless to say.
At present, the SEC is ready to consider Ethereum futures ETFs, so it can be argued its policy on cryptocurrency ETFs is fairly inconsistent. Many applications from different firms have been filed, which may signal the SEC is having second thoughts and is now taking into account the possibility of approval.