What impact would it have if the US SEC approves Ethereum futures ETF?

US SEC approval of Ethereum futures ETF What impact?

Original Text: DLNews

Translation: WuShuo Blockchain

• The U.S. Securities and Exchange Commission is about to approve Ethereum futures ETF.
• In July, investors traded $12.5 billion worth of Ethereum futures contracts.
• Futures products in the U.S. may increase demand for Ethereum.

Although Bitcoin futures ETFs have been around for nearly two years, there is still no Ethereum futures ETF – but this situation may soon change.

According to a report by Bloomberg on Thursday, the U.S. Securities and Exchange Commission is preparing to approve the sale of ETH futures ETF. ETH is the token used in the Ethereum blockchain network and is also the second largest cryptocurrency by market capitalization.

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This is good news for the dozen or so companies that have been eager to launch Ethereum futures ETFs, including Bitwise, Roundhill, and ProShares. Bloomberg reports that some funds may get approval as early as October. In addition, funds seeking investors may significantly reduce management fees in order to quickly gain market share.

Surging Demand

Ethereum futures ETFs may also bring new hope to DeFi investors who have frequently encountered hackers and thefts in the crypto field this year. According to K33 Research, futures products may “increase the inflow of demand for Ethereum in the United States.” This means more trading volume and more activity.

The emergence of ETH futures ETFs may also enhance people’s confidence that the SEC is open to the many applications for Bitcoin spot funds submitted by asset management companies such as BlackRock.

This will be a significant event as ETFs provide investors with an affordable way to bet on the performance of stocks, commodities, and perhaps cryptocurrencies. In addition, ETFs traded on the securities market often have high liquidity.

People hope that Bitcoin ETFs will eventually bring this asset class into the mainstream and drive other cryptocurrencies.

Unlike spot ETFs, futures ETFs will provide investors with an opportunity to bet on what the price of ETH will be months later. These products are technically derivatives tailored for institutional investors rather than retail traders.

That’s why the SEC and Gary Gensler may approve their sale even as the agency continues to review applications for Bitcoin spot ETFs.

Strong Market

Analysts say that although ETH supporters may welcome this news, the futures ETF for the token may follow the same trajectory as Bitcoin ETFs. This may cause concern among investors.

Nate Geraci, President of investment advisor ETFStore, told DL News that after two years of launch, the total assets under management of Bitcoin futures-related ETFs are still less than $1.5 billion.

Nevertheless, the market for Ethereum futures contracts remains strong. According to Coinglass data, in July, investors traded over $12.5 billion worth of Ethereum futures on the Chicago Mercantile Exchange. This may be far below the historical high of $34 billion in November 2021, but monthly trading volume this year has consistently exceeded $10 billion.

Fee War

The approval of the SEC is likely to ignite a competition among asset management companies to attract investors. This means that a fee war is looming.

Roundhill is an asset management company that is competing for an Ethereum futures ETF. If its fees are attractive, it could capture a large portion of the market share. Bloomberg Intelligence analyst James Seyffart tweeted that the asset management company disclosed a management fee of 0.19% for its fund.

“This is very low compared to ProShares’ Bitcoin futures ETF at 0.95%,” Seyffart said. It could be “much lower” than VanEck’s Bitcoin futures product, which charges 0.76%.

Geraci of ETFStore said he believes the fees will be below 0.4%, but it could be “much lower than this” in reality. “The fee competition will be fierce,” he concluded.

Not as Simple as Bitcoin

Geraci said that compared to Bitcoin futures, it is crucial for investors to assess the scale of an Ethereum futures ETF. Ethereum is not as simple as Bitcoin.

As a key component of the Ethereum network and extending to most of the DeFi ecosystem, Ethereum is more like a software game. Its value proposition lies in providing financial utility to users, whether it’s for payments, loans, loan collateral, or purchasing NFTs. In contrast, Bitcoin is now widely regarded as a speculative asset.

CoinShares stated last year that investors should approach these two digital assets in completely different ways.

“Ethereum should be evaluated differently, with a certain utility demand, while Bitcoin is a currency and should be evaluated using a currency demand model,” wrote research assistant Marc Arjoon.

In other words, Arjoon believes that Ethereum is more closely aligned with tech companies than with Bitcoin. Therefore, as investors understand its complexity, its correlation with Nasdaq may “potentially exceed Bitcoin over time.”

The conclusion is that an Ethereum futures ETF may decouple from the trend of Bitcoin futures products. There is also another consideration—if the SEC approves a spot Bitcoin ETF, assets in the futures market may shift significantly to the spot market.

“I believe investors want something real,” said Geraci, referring to a spot ETF.

A Suitable Benchmark

Analysts have been trying to estimate the market size of an Ethereum futures ETF. Bitcoin has a market cap of about $500 billion, while Ethereum’s market cap is slightly less than half of that. Geraci said, “I think this is a good benchmark for predicting the market size of an Ethereum futures ETF.”

Matt Kunke, a research analyst at market maker GSR, is also making estimates. “We expect the upper limit of demand to be around $1 billion,” he told DL News. He added that this is only a small part of the liquidity provider’s expectations for a spot ETF.

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