In a major boost to the crypto industry, Ethereum Spot ETFs are expected to start trading by July 23.
The US Securities and Exchanges Commission (SEC) has approved the request of at least three of the eight asset management companies namely BlackRock, VanEck, and Franklin Templeton to start Ethereum Spot ETFs. Sources say that the approval will be finalized as soon as the concerned parties submit all the required documents regarding the final offering by this week.
Following the success of the Bitcoin spot ETFs, which were introduced in January of this year, the Ethereum spot ETFs’ launch is significant.
The launch is expected to boost the bullish sentiments of the crypto market as the ETH token price has already risen after this announcement.
Ethereum Spot ETFs: Why are they Important?
Ethereum Exchange-Traded Funds (ETFs) are bracket investment opportunities investors have a choice of various stocks related to Ethereum that they can invest in.
Mainstream Ethereum investors get an opportunity to invest in the currency through their brokerage account by paying just a nominal fee. Spot ETFs are a good way for Ethereum investors to tackle the price volatility of Ethereum.
The Ethereum spot ETF traders buy ETH tokens from various market players and store them in a secure cold wallet to prevent them from being hacked.
The ETF provider then issues shares based on these ETH holdings. The value of the shares directly reflects the market price of ETH from time to time.
The liquidity of ETH on the market is assured by the token holders buying and selling the tokens from time to time to balance their price and availability in the market.
Spot ETFs give investors a say in the Ethereum market without having to bear the expense of buying and storing ETH tokens and managing the associated risks.
Spot Ethereum ETFs, in contrast to futures ETFs, have problems holding ETH tokens in real-time, and the stocks they issue are based on actual assets rather than speculated future values.
They have real ownership of the ETH tokens and therefore it is more transparent and accountable than futures ETFs.
Advantages of Ethereum Spot ETFs
The following lists the main benefits of Ethereum Spot ETFs.
- Spot ETFs are the easiest way to access the cryptocurrency market. Investors who are planning to invest in ETH tokens can bypass the cost of maintaining Ethereum wallets, wading through online exchanges, and the safekeeping of ETH private keys if they invest in spot ETFs.
- Spot ETFs are overseen by regulatory agencies in contrast to people buying ETH tokens directly. Therefore the investor’s interests are largely protected here.
- ETFs have a well-defined taxation system as they are modeled on traditional markets when compared to cryptocurrencies.
Disadvantages of Ethereum Spot ETFs
Ethereum spot ETFs are not devoid of disadvantages and risks. A few of these drawbacks are listed below.
- As Ethereum is a highly volatile cryptocurrency, this volatility can affect the ETFs too as they are based on the real-time price of Ethereum.
- Another important risk factor of the ETH spot ETFs is the lack of regulatory consensus. As this is a newly emerging market there are still uncertainties about how the unexpected frauds, price manipulations, and other mishaps should be handled.
- Spot ETFs will have to hold a large number of cryptocurrencies, which can make them the point of attack by cybercriminals. If they can penetrate the various layers of security and get hold of the private keys of ETH tokens held by the ETFs then it can result in huge thefts.
- Another disadvantage of ETH spot ETFs is that investors will have to pay hefty fees to the ETFs for their managerial oversight.
Also, Read: Crypto ETFs Explained: What You Should Know?
The Future of Ethereum Spot ETFs
Ethereum spot ETFs are posed to be a great success following the path of its predecessor Bitcoin Spot ETFs. Despite the disadvantages, Spot ETFs can result in increased adoption of ETH tokens.
The market validation that ETH tokens get can boost investor confidence in ETH tokens and the cryptocurrency market at large.
Moreover, the overall liquidity of Ethereum tokens in the market will be enhanced through increased buying and selling of the tokens by ETF providers. To put it briefly, Ethereum spot ETFs have a promising future.
