Ethereum ETF Potential Rollout in June Amidst Hype: So Why is Ether Not Surging?

After months of delays and limited engagement, the United States (US) Securities and Exchange Commission (SEC) has approved a long list of asset managers to offer spot Ethereum (ETH) exchange-traded funds (ETFs).

This list includes prominent names such as BlackRock, Grayscale, Ark 21Shares, Fidelity, VanEck, Franklin Templeton, Invesco Galaxy, and Bitwise.

The approval of spot Ethereum ETFs, similar to Bitcoin ETFs, allows fund managers to handle the purchase and storage of ETH digital coins, enabling investors to buy shares that track their value.

This development provides investors with exposure to the second-largest cryptocurrency by market cap.

BlackRock Leads the Charge with New Ethereum ETF Filing Amidst Potential Late June Rollout

On 29 May, BlackRock submitted an updated S-1 filing for its iShares Ethereum Trust (ETHA), marking a significant step towards launching a spot Ethereum ETF.

This follows the SEC's initial approval of Form 19-b last week.

The amended S-1, which builds on BlackRock's original registration statement from November 2023, has attracted considerable attention for its comprehensive disclosures and BlackRock’s demonstrated commitment to the ETF's success.

James Seyffart of Bloomberg interprets this development as a clear sign of ongoing collaboration between issuers and the SEC, highlighting the market's readiness for these financial products.

Erick Balchunas, a senior ETF analyst, echoed this sentiment positively.

He commented on social media that the updated filing is a "good sign" for the industry, suggesting a sequence of events that could soon lead to the introduction of these ETFs in the market.

The recent filing includes detailed information about seed capital investments, essential for the ETF's launch phase.

On 21 May, a BlackRock affiliate, the Seed Capital Investor, acquired 400,000 shares at $25.00 each.

The sponsor, iShares Delaware Trust Sponsor, may collect up to $500,000 annually in fees, though the filing does not specify a percentage-based sponsor fee.

These shares will be listed under the ticker symbol "ETHA," enhancing accessibility and transparency for cryptocurrency investors.

The trust will issue and redeem shares only in blocks of 40,000.

Wilmington Trust, National Association will serve as the Delaware trustee, and Bank of New York Mellon will act as the trust administrator and cash custodian.

The updated S-1 filing also reintroduces the potential for in-kind creation and redemptions, allowing for crypto rather than cash transactions among authorised participants.

However, the approval for in-kind transactions is not guaranteed, and the timing remains uncertain.

This strategic move is expected to bolster BlackRock’s market position, providing investors with a regulated framework to engage with digital assets.

Analysts suggest that spot Ether ETFs could realistically launch by late June following BlackRock's resubmission.

Although another round of fine-tuning SEC comments is anticipated, an end-of-June launch remains a viable possibility.

Hashdex Bows Out of Ethereum ETF Contention

In September 2023, the Nasdaq stock exchange submitted a proposal to the SEC to list the Hashdex Nasdaq Ethereum ETF.

Unlike other applicants, Hashdex proposed a spot Ether ETF that combined spot Ether holdings with Ether futures contracts within the same product to mitigate potential manipulation.

Other contenders, including Fidelity, ARK 21Shares, and Franklin Templeton, have focused solely on spot-based Ether ETFs, making late amendments to their filings, such as removing support for ETH staking in response to SEC feedback.

When Hashdex sought approval for an Ether ETF, it presented a unique model that combined physical Ether with Ether Futures contracts.

The fund aimed to address concerns about market manipulation by autonomously tracking daily movements in the Nasdaq Ether Reference Price.

Initially filed in September 2023, the proposal outlined the intention to hold spot Ether, Ether futures contracts, and cash exclusively, with the goal of deterring manipulation of spot prices in the market.

However, a document filed with the SEC on 28 May indicates that the proposed rule change permitting the introduction of the Hashdex Nasdaq Ethereum ETF has been retracted.

Source: Document submitted to SEC

The withdrawal occurred on 24 May, shortly after the approval of eight similar financial products by the regulatory body.

Despite this development, the reasons behind Hashdex's decision to retract the proposal remain ambiguous, and the company has not signalled any intent to resubmit it.

According to a source familiar with the application, Hashdex "no longer plans to pursue a single asset Ether ETF," leaving questions about the company's future strategies in this area.

Ether Price Fails to Surge Despite Ethereum ETF Approval

Despite the recent approval of spot Ethereum ETFs in the US, Ether's ascent to new highs remains elusive.

The cryptocurrency, holding its ground around $3,840 post-SEC approval, hit $3,968 on Monday, marking a more than 30% rise over the past two weeks.

At the time of writing, however, it has dipped to $3,782.

Noelle Acheson, former head of market insights at Genesis Global Trading, suggests Ether's struggle is intertwined with lingering inflation concerns.

Acheson notes Ether's sensitivity to broader macroeconomic trends, echoing sentiments in her newsletter, "Crypto is Macro Now."

She said:

“It looks like the US economy is in full expansion, with the manufacturing sector joining services in keeping inflation high.”

While the crypto community rejoiced over the SEC's ETF approval, the release of S&P Global's PMI data revealed robust economic figures, posing challenges for Bitcoin and Ethereum alike.

With the Federal Reserve maintaining relatively high interest rates to combat inflation, investors are deterred from risk-on assets, opting for safer Treasury yields.

Quinn Thompson, founder of Lekker Capital, concurs, speculating that true crypto fervour may only reignite once the US dollar weakens — a scenario potentially realised through Fed rate cuts.

The market had ample time to prepare for the Bitcoin ETFs, but the Ethereum counterparts faced a compressed timeline.

While this sparked a rapid price surge for ether and a notable increase in open interest, signalling heightened leveraged activity, traders had limited time to position themselves adequately.

DeFiance Capital co-founder Arthur Cheong said:

“No, I don't think it is priced in.Impossible for the market to price in such a major shift in expectations and positioning in a few days. Price is almost unchanged compared to 12 hours after the news came out."

Moreover, since there is a delay before the ETFs become operational, there is a window of opportunity over the next few weeks for slower traders to strategise ahead of anticipated inflows.

Consequently, market analysts speculate that the approvals may not have been fully factored into the current market dynamics.

Tranchess co-founder Danny Chong concurred:

“The Ethereum ETF approval is partially priced in. We expect considerable volatility and potentially sideways movement in Ethereum's price in the short term, driven by fluctuating demand and supply dynamics.”

Grayscale is in the process of converting nearly $11 billion in assets from its Grayscale Ethereum Trust (ETHE -2.03%) into a spot price ETF.

However, this figure pales in comparison to the assets held by the Grayscale Bitcoin Trust before its conversion, which now exceeds $20 billion.

While the introduction of these new Ether ETFs may capture the interest of mainstream and institutional investors, they are unlikely to generate the same level of momentum as the Bitcoin spot price ETFs did earlier this year.

Additionally, Ether lacks significant near-term catalysts akin to Bitcoin's halving event earlier this year, which reduced mining rewards.

The 8 Products Coming to the Market

Drawing from the timeline of previous spot Bitcoin ETFs, it is plausible that these products could hit US exchanges within a few months, or the stipulated late June.

While the fee structures for these ETFs remain somewhat unclear, proposed ranges currently span from 0.60% to 2.50%.

** This information is still evolving and may be based on similar products recently released like spot BTC ETFs.

Despite this broad spectrum of fees, it remains to be seen how these products will distinguish themselves beyond their fee structures.