SEC Set to Approve New Spot Ethereum ETFs

The U.S. Securities and Exchange Commission is set to approve a host of new spot Ethereum (ETH) ETFs on Tuesday. Up to eight funds are expected to start trading, enabling retail investors and institutions, including those that cannot otherwise own digital assets, to purchase the second-largest cryptocurrency by market capitalization.

Ethereum is far and away the most mature blockchain built specifically for decentralized applications. Launched in 2015, it has one of the highest developer counts and routinely ranks among the most active chains. Its native token, ether (ETH), has a $400 billion market cap and is the only token besides Bitcoin to have futures contracts trading on the CME exchange.

The SEC’s approval of spot ETH exchange-traded funds is seen as a legitimizing force for the cryptocurrency and could potentially drive up its price. Spot Bitcoin ETFs, which launched in the U.S. in January after protracted regulatory hold-ups, have been a breakout success—with the 11 funds amassing a nearly $60 billion market cap to date—and many market participants and watchers think ETH ETFs could see similar interest among both retail and institutional investors.

“I think these ETF products significantly validate the legitimacy of crypto as an asset class,” said Kraken Head of Strategy Thomas Perfumo. “The same people who called crypto ‘rat poison’ five years ago are now the ones creating products around it. There is real demand behind this—you can’t ignore it anymore.”

Additionally, experts like VanEck Head of Digital Assets Research Matthew Sigel believe that the approval of ETH ETFs could lay the groundwork for similar products for other cryptocurrencies. VanEck was the first firm to file to launch an ETF tracking Solana, although most market commentators assert those are unlikely to launch soon.

What is an ETH ETF?

Spot ETH exchange-traded funds track the price of Ethereum’s native token.

ETFs are a relatively new type of investment product that first hit the market in the early 1990s. Since then, they have become some of the most popular financial products. These funds, which trade on exchanges like NYSE and Nasdaq, enable investors to gain exposure to securities or commodities and usually have lower fees and expense ratios than buying individual stocks.

In other words, crypto ETFs provide an easier way for average investors to include assets like ether and Bitcoin in their retirement accounts and for institutions to construct crypto trading strategies. This could drive demand for ETH—potentially increasing its price—since ETFs serve as a more familiar entry point than crypto-native exchanges or peer-to-peer transfers for many.

How much ETH will the funds accumulate?

Estimates for ETH ETF capital inflows vary widely. Perfumo predicted $750 million to $1 billion in net inflows per month for the first five to six months, aligning with Citigroup’s projection of between $4.7 billion and $5.4 billion over the first six months of trading. However, the bank stated that ETH ETFs will likely see only 30% to 35% of Bitcoin spot ETF inflows.

For context, Bitcoin has risen nearly 50% since the launch of spot BTC funds, hitting an all-time high above $70,000, which contributed to over $12 billion in net inflows for the spot Bitcoin funds.

Bitwise, one of the firms launching an ETH ETF, is more optimistic, predicting $15 billion in ETH ETF inflows by May 2025. Traders have purchased over $20 million in ether call options, betting that the funds will elevate ETH’s price to new heights. It’s worth noting that Bitcoin saw a price drop immediately following the launch of spot BTC ETFs.

“At our $22k price target, ETH market cap would be $2.5 trillion, roughly the size of Google today,” Sigel mentioned in an email.

Who buys crypto ETFs?

Exchange-traded funds are popular financial products across the board. While many institutional investors—like Steven Cohen’s Point72 Asset Management, Paul Singer’s Elliott Investment Management, and the Israel Englander-run Millennium Management—have bought spot Bitcoin ETFs, the market has largely been dominated by retail traders.

As of May, nearly 1,000 firms with at least $100 million in assets reported acquiring Bitcoin ETFs, according to Bitwise research. Yale University and Princeton University also disclosed holdings in Bitcoin ETFs as part of their endowments.

Although this number is substantial—Bloomberg’s James Seyffart noted that Bitcoin funds have been more well-received than expected—Bitwise found that retail traders accounted for 80% of the assets under management.

Ethereum appeals to a different type of investor compared to Bitcoin, which is sometimes referred to as “hard money” or an inflation hedge. ETH also less recognized. However, the ETH funds are likely to attract a broader range of investors, thereby boosting liquidity and expanding network adoption.

Who is launching ETH ETFs?

Eight firms are anticipated to receive SEC approval on or after Tuesday, once their S-1 filings revealing key details about how the funds are structured are approved. These include ARK & 21 Shares, BlackRock, Fidelity, Franklin Templeton, Grayscale, Hashdex, Invesco, and VanEck—all of which also have spot Bitcoin ETF products.

Some of these firms have selected Coinbase as a custodian. VanEck is utilizing Gemini for clearing infrastructure, while Fidelity, with strong experience in Bitcoin markets, is self-custodying its ether.

The funds will be listed on Nasdaq, Cboe BZX Funds, and NYSE Arca.

What is the ETH ETF ‘fee war’?

Just as competition among issuers decreased management costs for Bitcoin funds, prospective issuers appear to be engaged in a fee war. According to the current S-1 filings, Franklin Templeton will charge a 0.19% management fee, VanEck 0.20%, 21Shares 0.21%, and Invesco 0.25%.

Grayscale is charging the highest fee (it’s spot Bitcoin ETF is at 1%), with a 2.5% fee on its flagship ETHE product, while a smaller “mini fund” will have a lower charge of 0.15%, akin to its Bitcoin mini fund.

BlackRock’s iShares fund plans to launch with a 0.25% expense ratio but intends to reduce this to 0.12% upon reaching $2.5 billion in assets. Bitwise promises no fee for six months until it achieves $500 million in assets.

Will there be staking?

Ethereum is secured through a process called staking, which rewards anyone willing to lock up ETH to validate transactions, providing a form of passive income estimated to pay around 3.2% APR. Staking can occur individually (i.e., solo staking requiring 32 ETH) or through third parties like a liquid staking protocol or exchange.

While many firms initially intended to stake the underlying ETH in their funds to generate income and offer rewards to buyers, the SEC raised concerns about this practice. As part of the approval process, companies including Ark, Fidelity, and Grayscale dropped the staking component from their funds, which would have helped to set them apart from Bitcoin ETFs.

In various enforcement actions, the SEC has indicated that staking may violate securities laws. For instance, it sued Coinbase in June 2023 over its staking-as-a-service product. SEC Chairman Gary Gensler has suggested that ether itself could be a security, despite the Commodity Futures Trading Commission approving ETH futures contracts, classifying it as a commodity.

However, SEC Commissioner Hester Pierce has mentioned that staking may not be permanently out of the picture. For instance, VanEck stakes most of its ETH in its listed funds in Europe without issue, according to Sigel, who commented that a change in administration may be required to secure approval.