Ethereum Futures ETFs: Are They Worth Investing In?
As cryptocurrency investments become more common, new opportunities are becoming available to traders. One of the most popular investments right now is the crypto futures ETF. Exchange-traded funds (ETFs) have long been available for stocks and bonds. However, applying this concept to crypto is still somewhat new. The most recent ETFs to be launched on the market are Ethereum futures ETFs. Keep reading to learn what they are and how they work.
Key Takeaways:
An Ethereum futures exchange-traded fund (ETF) bundles multiple futures contracts into a single, publicly traded fund.
A series of Ether futures ETFs collectively launched on Oct 2, 2023. While this generated lots of buzz, trading volume remains low.
Different Ethereum futures ETFs are designed to achieve different things. Some try to closely mimic the price of Ether (ETH), so the value of the share will follow the rise and fall of Ether prices. Others try to generate a profit based on Ether price increases.
What Is an Ethereum Futures ETF?
An Ethereum futures ETF is a type of exchange-traded fund that bundles multiple futures contracts into a single, publicly traded fund. These funds can generate profits during a variety of market conditions. The ETF share prices fluctuate depending upon the perceived value of the fund.
All ETFs are carefully regulated by the U.S. Securities and Exchange Commission (SEC), and an ETF can only start trading shares after it gets SEC approval. The SEC started to approve crypto futures ETFs in 2021, and has been very cautious about authorizing new funds. The very first Ethereum futures ETFs were finally released on Oct 2, 2023. This new launch has generated a lot of excitement in the crypto world, though Ethereum futures ETF trading volume remains low as compared to stock ETFs and Bitcoin ETFs.
How Does an Ethereum Futures ETF Work?
To understand how an Ethereum futures ETF works, it's helpful to look at an example.
Consider an Ethereum futures ETF that aims to profit when the market falls. The fund purchases multiple options contracts that gives it the right to sell the crypto for a set price at a later date. As these options expire, the fund’s managers will continue to roll over profits into more futures so the fund can keep going for as long as it needs to.
After creating a fund that shorts Ether, the fund’s managers divide it into shares to sell on an exchange. The price for these shares is based on demand, and it changes depending upon how many people want to purchase the shares. If ETH prices start falling, the fund makes a bigger profit, so shares in it are more valuable. If ETH prices rise, shares in the fund lose their value.
Profiting off of ETH’s price decreases is just one example of how an ETF can function. Different Ethereum futures ETFs have disparate goals; some try to mimic the price of Ethereum closely, so the value of the share will follow the rise and fall of Ether’s price. Others try to generate a profit based on Ether’s price increases.
Ultimately, crypto investors can trade ETF shares just as they do with any other commodity. If market conditions work in their favor, they turn a profit. Many factors can have an impact on a futures ETF's value, including:
How the fund is run
Current Ether prices
Expectations about future Ether prices
Interest in trading Ethereum ETFs
Whether other ETFs provide a better return
Levels of optimism about Ethereum
Benefits of an Ethereum Futures ETF
There are several helpful perks to working with an Ethereum futures ETF.
Ease of Use
Ethereum futures ETFs are popular with novice investors because they handle all of the little details for you. You just decide whether you think the market will go up or down or stay the same, and then buy an Ethereum futures ETF share that matches your strategy. You don't have to figure out how to purchase options yourself, and you don't need to do the work of constantly buying and selling them at the right time. This type of investing is simple, convenient and fast.
Accessibility
Another great thing about investing in an Ethereum futures ETF is that it's not limited to crypto markets. An Ethereum futures ETF can be publicly traded across several markets. This means that investors can start profiting from crypto without needing to create accounts on decentralized exchanges (DEXs) or set up their own crypto wallets. Ultimately, Ethereum futures ETFs often appeal to traditional traders who don't work in the crypto market. This increased accessibility leads to a broader market with more people interested in Ethereum as a whole.
Reduced Fees
Compared to purchasing Ethereum futures contracts yourself or hiring a fund manager to invest in Ether for you, an Ethereum futures ETF is very affordable. The passive management style requires less money to operate the fund, and all the options fees are bundled into the fund itself. Investors simply buy and sell shares without having to worry about paying extra fees to the people actually writing the futures contracts.
Challenges of an Ethereum Futures ETF
Though many people enjoy investing in Ethereum futures ETFs, keep in mind that there are some potential downsides to these funds.
Lower Chance of Significant Profit
Ethereum futures ETFs are a low-risk investment, but their dividend yields tend to be on the lower side as well. Most people who purchase futures ETFs do so for their stability, but this comes with some downsides. Though there's less of a chance of you losing all your money, there's also a low probability that your futures ETF will make you a millionaire overnight. Especially if you're good at doing your research and picking the right crypto, investing in an actual asset may provide more profit than investing in Ethereum futures ETFs.
Not a Liquid Investment
Technically, you can sell your Ethereum futures ETF shares at any time. However, this type of investment isn't always in high demand. Unlike Ether itself, there aren't always going to be millions of investors willing to take your ETF share off your hands. Even if the futures ETF performs well, there might not be people who are ready to pay its actual value. If you don't have time to wait for an interested buyer to appear, you may end up having to sell at a loss. In most cases, ETFs aren’t investments you can instantly convert to their true value in cash.
Best Ethereum Futures ETFs
Now that the SEC has finally started allowing Ethereum futures ETFs, it's easy for traders to explore these funds. Here are two of the most exciting ones currently available.
ProShares® Ether Strategy ETF (EETH)
Famed for its ProShares® Bitcoin Strategy ETF, ProShares® has launched its ProShares® Ether Strategy ETF (EETH), which is currently the largest Ethereum futures ETF on the market. It offers pure exposure to Ethereum and has an expense ratio of 0.95%. The ProShares Ether Strategy ETF is set up to mimic the performance of Ethereum, so its price rises and falls in relation to Ether’s price.
Bitwise Ethereum Strategy ETF (AETH)
This Ethereum futures ETF also contains some Bitcoin futures. It's a great way to gain exposure to the most popular crypto coins without having to specialize in just one. The Bitwise Ethereum Strategy ETF (AETH) is run by Bank of New York Mellon and has an expense ratio of 0.85%. This Ethereum futures ETF is designed to correspond to crypto market movements.
Trading Ethereum Futures ETFs vs. Trading Ethereum
Other than the fact that they both rely on the Ethereum network, Ethereum futures ETFs and Ethereum tokens don't have much in common. An Ethereum futures ETF provides multiple strategies for profiting, while Ethereum tokens only generate a profit if crypto prices increase. With Ethereum futures contracts, you can just bet on general market movements instead of having to closely analyze specific price points. Compared to attempting crypto day trading, an Ethereum futures ETF is often less risky and requires less active management on your part.
However, purchasing Ether can be useful because it lets you own the underlying asset instead of just owning a share of a contract. You can liquidate Ether more easily, and mismanagement from a third party can’t destroy the token's value. When you own actual Ether, it can also be used for making purchases, so it has more inherent use than owning a futures ETF contract.
The Future of Ethereum Futures ETFs
When the SEC first agreed to approve an Ethereum futures ETF, there was a lot of excitement from traders. However, it's worth noting that the trading volume for all the new Ethereum futures ETFs was much lower than predicted. Some investors feel this indicates the market is oversaturated. With so many different ETFs struggling to gain attention, it's unlikely that several more will be released in the upcoming months.
Despite the excess supply, however, the future still looks positive for crypto ETFs. Compared to standard finance ETF launches, the Ethereum futures ETFs launch had higher-than-average trading volume. This indicates that crypto products are becoming an accepted part of the finance world. Even if a few of the less popular Ethereum futures ETFs go under, the higher-performing ones seem likely to attract a considerable number of users.
Are Ethereum Futures ETFs Worth Investing In?
Even if Ethereum futures ETFs haven’t yet generated as much interest as Bitcoin futures ETFs, it's still worthwhile to check out these investments. They're stable and low-risk, so they're a great way to diversify your portfolio. With an Ethereum futures ETF, you can make a profit even if Ethereum prices drop. Furthermore, ETFs make it quick and easy to add crypto futures contracts to your portfolio. You can manage your crypto investments right alongside your standard stocks and bonds, so investing is straightforward and convenient.
Just keep in mind that the low trading volume indicates they aren't likely to be the next big thing. Share prices don't seem poised to suddenly soar in price, and some of the less popular Ethereum and Bitcoin futures ETF options might get crowded out by their competitors. Therefore, you need to exercise due diligence, research before buying shares and avoid making any single Ethereum futures ETF the main focus of your portfolio.
The Bottom Line
An Ethereum futures ETF can be a unique way of investing in crypto without having to own the actual asset. Though it doesn't have as much inherent value as an Ethereum token, a futures ETF is still a great addition to any crypto portfolio. With so many Ethereum futures ETFs to choose from, investors have a lot of opportunities to try out this type of fund.
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