How To Navigate Ethereum Spot ETFs Securely

ETFs have been one of the most important instruments to cross over from traditional finance (TradFi) into crypto. The highly anticipated arrival of the first-ever spot Bitcoin ETFs in the United States reenergized the industry and captured mainstream attention. This excitement also extended to several high-profile spot Ether ETF applications which, in a surprise turn from US regulators, were approved just months after the spot Bitcoin ETFs.

Yet, the long-term consequences of ETFs on crypto remain to be seen. For all the welcome energy that they bring into the ecosystem, their custodial approach goes against some of crypto’s founding philosophies around individual ownership. 

So what exactly are spot Ether ETFs? How do they differ from other kinds of ETFs, and should you buy shares in an ETF or just buy crypto directly? Ledger Academy breaks it all down in this article.

Let’s dive in.

What Are Ethereum ETFs?

An exchange-traded fund (ETF) is a kind of financial instrument that allows investors to gain exposure to a group of assets. You can think of an ETF as an investment pool that tracks the performance of a group of assets such as stocks or bonds. ETFs can be appealing because they give investors exposure to certain groups of assets without having to trade individual assets. 

Similarly, cryptocurrency ETFs, such as ETH ETFs, allow investors to bet on the price of Ether without having to directly buy it.

Ethereum Spot vs Futures ETFs

There are two types of Ethereum ETFs: spot ETFs and Futures ETFs.

A futures ETF tracks the price of futures contracts. In this case, an Ethereum futures contract is an agreement to buy or sell Ether at a predefined price, at a later date. Notably, the value of the futures contract is determined by whether futures contract holders are betting on the price of ETH to rise or fall. This means that the price of a futures contract can be higher or lower than the actual price of Ethereum, depending on the sentiments of futures contract holders. 

In contrast, spot Ether ETFs actually hold ETH in their funds. Rather than tracking the price of futures contracts, spot ETH ETFs track the real-time value of ETher, aka its “spot” price. For investors, this means getting more direct exposure to ETH than a futures ETF might offer.

How Do Spot Ether ETFs Work?

Setting up a spot Ether ETF involves buying and holding ETH. Firstly, an authorized participant (AP) like an asset management fund, buys and holds a certain amount of Ether. The fund manager then issues shares in that fund – based on the amount of ETH in the fund and market demand – which investors can purchase like stocks.  

Because the fund directly holds Ether, the value of the ETF is directly linked to Ether’s price, meaning that when it rises or falls, investors expect the value of the ETF to rise or fall similarly.  If the ETF shares begin trading significantly above or below the price of Ether, the AP can create or redeem ETF shares to bring the prices back into alignment.

The History of ETH ETFs

In the U.S., spot crypto ETFs were a long-awaited development with a rocky road to approval. For years, the United States Securities and Exchange Commission (SEC) – the de facto body regulating crypto in the US – held a negative view of spot crypto ETFs, rejecting about 20 applications for Bitcoin spot ETFs between 2018 and 2023.

The first change in stance came in January 2024 when the SEC approved spot Bitcoin ETFs for the first time. Even so, with SEC representatives continuing to assert that Ether might be a security, the ETF approval seemed unlikely for months. Nevertheless, and in a surprising and abrupt about-face, the SEC finally approved the first spot Ether ETFs in May 2024.

How Many Ethereum ETFs Are There?

There are already more than 25 spot ETH ETFs currently open across the globe. Outside of the U.S., jurisdictions that have approved spot ETH ETFs so far include Canada, Brazil, Germany, and Switzerland.

How Many Ethereum ETFs Are There in the US?

There are currently nine spot ETH ETFs trading in the US, including offerings from some of the world’s largest asset managers. The nine ETFs are: 

1. Grayscale Ethereum Mini Trust (ETH),
2. Franklin Ethereum Trust (EZET)
3. VanEck Ethereum Trust (ETHV)
4. Bitwise Ethereum ETF (ETHW)
5. 21Shares Core Ethereum ETF (CETH)
6. Fidelity Ethereum Fund (FETH)
7. iShares Ethereum Trust (ETHA)
8. Invesco Galaxy Ethereum ETF (QETH)
9. The Grayscale Ethereum Trust (ETHE)

When did Spot Ether ETFs start trading?

The nine US spot Ether ETFs began trading on July 23rd, 2024, netting a combined trading volume of more than $1B. Notably, this marked a much slower start for spot ETH ETFs as compared to Bitcoin spot ETFs, which saw $4.66B in trading volume on their first day. All in all, the buying into ETH ETFs has cooled: one month following their launch, spot ETH ETFs sit at over $400M in outflows (money leaving the funds).

Top ETH ETFs in 2024

BlackRock’s iShares Ethereum Trust (ETHA)

The world’s largest asset manager, BlackRock is also the manager of the largest ETH ETF by trade volume with its iShares Ethereum Trust (ETHA). Shares of ETHA trade with a fee of 0.12% for the first 12 months, or until the fund reaches $2.5B, at which point the fee increases to 0.25%.

Grayscale Ethereum Mini Trust (ETH) 

The Grayscale Ethereum Mini Trust (ETHE) is the asset manager’s second Ethereum fund, following the Grayscale Ethereum Trust (ETHE) which launched in 2017. In contrast to the Ethereum Trust which carries 2.5% fees, the Mini Trust has zero fees for buyers in the first six months (or until the fund reaches $2B), after which fees increase to 0.15%. 

VanEck Ethereum Trust (ETHV) – VanEck

VanEck is considered a pioneer when it comes to crypto ETFs, with its holdings including the VanEck Bitcoin Trust (HODL) and the VanEck Digital Transformation ETF (DAPP). This fund also trades with zero fees until it reaches $1.5B, or for the first 12 months, after which fees increase to 0.2%

Why Are Spot ETH ETFs Important?

Many people in crypto see spot ETFs as a beneficial tool for promoting mainstream crypto adoption. The idea is that spot ETFs are a more straightforward exposure to crypto for certain investors. This might appeal to investors who don’t want to go through the process of buying and securing their crypto, or those who might prefer to gain exposure to crypto via a traditional, regulated financial instrument. 

Challenges of Spot Ether ETFs

The biggest challenge with spot ETH ETFs is that they do not represent real ownership of crypto. While this is not completely negative as it can still bring people into the ecosystem, it’s ultimately at odds with the founding philosophy of crypto. 

As Ledger CTO Charles Guillemet laid out in his BTC Prague 2024 Keynote, ‘Don’t Buy Into an ETF’, “The purpose of Bitcoin is permissionless money: you don’t have to ask anyone permission to own your value and to use it.” Spot ETFs inherently negate this aspect of crypto for those buying into them.

Then there’s the additional factor of regulation. While the SEC changed its stance once and approved the ETFs, it could change again, potentially opening up ETFs to new regulatory challenges down the line.

Where Can I Buy ETH ETFs?

As the name suggests, ETFs are available on traditional regulated exchanges like the New York Stock Exchange and Nasdaq. That means you can buy and sell shares of spot ETH ETFs on many of the same online brokerage platforms that offer traditional assets like stocks and bonds.

Before you buy into a spot Ether ETF however, it’s important to consider some of their drawbacks. Ultimately, buying shares in a crypto ETF does not give you access to the most impactful things that crypto enables. By practicing secure self-custody, you can hold your crypto yourself, giving you full control over your assets and eliminating third-party risk. 

Final Thoughts on ETH ETFs

All things considered, spot Ether ETFs occupy a helpful space in the wider crypto ecosystem, opening up crypto to users who might not otherwise consider it. At the same time, buying into an ETF confronts you with the third-party risks that crypto was built to overcome.

The revolutionary power of crypto comes from its permissionless nature, and the only way to take advantage of that is through self-custody. Fortunately, Ledger’s lineup of secure devices makes it easy to secure and manage your digital assets. Plus, with Ledger Live you can buy your crypto directly through our buy providers, all while enjoying the battle-tested security of your Ledger device.

If you’re considering exploring what crypto has to offer, there’s no need to wait. Explore the Ledger ecosystem today to start your journey to secure self-custody.