Analysts pridect The SEC will approve spot Bitcoin ETF applications in January 2024, following the approval of Bitcoin (BTC) futures ETFs in October 2021 and Ethereum (ETH) futures ETFs in October 2023. .
In anticipation, traditional financial institutions have also applied to issue Ethereum ETFs. Since applicants like BlackRock have a near-perfect track record of obtaining SEC approval for their ETFs, spot ETFs will likely be approved as well. However, the SEC may only approve it after its Bitcoin counterparts, meaning Ethereum ETFs will be approved in late 2024 or early 2025.
If approved, Bitcoin and Ether ETFs would attract millions of new investors who were previously unable or unwilling to purchase cryptocurrency assets directly. Will the different investment thesis for Bitcoin and Ether, coupled with the ability of issuers to incorporate features of each asset into spot ETFs, impact the success of these newly created products?
For Ethereum in particular, the disparity between the use cases of the underlying asset and spot ETF product offerings raises doubts about the viability of the product. The Ether spot ETF does not allow shareholders to participate in the Ethereum network – which is the main reason why an investor would seek to acquire Ether. Meanwhile, Bitcoin, which is widely used as a store of value, makes a Bitcoin ETF a more straightforward investment proposition.
Ether ETFs have no investment thesis
The Ethereum investment thesis revolves around the ability of individuals and institutions to use the ETH token on the Ethereum network. Unlike Bitcoin, which is known for its monetary qualities as a store of value, as well as a medium of exchange in some geographies, the ether token acts as a “gas” for the technology ecosystem. One way users use ETH is staking, which is the process of participating in the validation of a transaction on the blockchain to prove ownership by locking an amount (stake) of the network's native token to validate consensus and earn a return.
River CEO Alexander Leishman advertiser“ETH has positioned itself as a technology platform and is now forced to compete as such.” The role of the ETH token as a token for the Ethereum platform means that its investment thesis does not rely on fundamental monetary properties.
Ether's fundamental value proposition makes it difficult for companies to market spot ETF products that only provide investors with exposure to price. Investors do not hold Ether due to its decentralization or monetary qualities. Companies like MicroStrategy do not sell shares to buy ether. Countries like El Salvador have not designated Ethereum as legal tender – in fact, as far as anyone knows, no national governments are talking about it.
Another hurdle is that apps like BlackRock's don't even mention staking, which is central to Ether's investment thesis. The SEC has been strict about cryptocurrency exchanges offering staking features as a service, making it unlikely that BlackRock or other issuers would get permission to offer staking via ETFs.
Bitcoin ETFs
Based on current applications, Bitcoin ETF issuers will not offer in-kind redemptions, meaning shareholders cannot hold their Bitcoin. Therefore, such products expose additional risks to the counterparty. However, shareholders gain exposure to the price of Bitcoin. This allows them to benefit from rising prices even if annual management fees cut into their profits.
Through a spot Bitcoin ETF, issuers can rely on demand from market participants who view Bitcoin as a store of value and seek prolonged price exposure. The store of value investing thesis makes it easier for Wall Street firms to market spot Bitcoin ETF products to financial advisors and individual investors.
In anticipation of the approval of spot bitcoin products, traditional financial leaders like BlackRock CEO Larry Fink have changed their rhetoric. They no longer make sound bites like the “Money Laundering Index” when it comes to Bitcoin. Instead, Fink now calls it an “international asset” that “digitizes gold” and represents a “journey to quality” for investors.
Fink's description reflects Bitcoin's perceived product market fit in Western markets as a store of value due to the decentralization and monetary policy of the network. Some US-based companies create bitcoin products focused on payments, but most bitcoin holders store their wealth in bitcoin for long periods.
He looks forward
The lackluster launch of an Ether futures ETF in October may indicate that an Ether spot ETF will face similarly low demand. The fundamental investment theses for Bitcoin and Ether will determine the demand for ETFs issued against these assets. Since Ether's utility comes from its ability to be used within the Ethereum ecosystem, a spot ETH ETF is unlikely to be a valuable product offering.
This is a guest post by David Waugh. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
