Analysts are predicting that the Securities and Exchange Commission (SEC) will approve spot Bitcoin ETF applications in January 2023. This comes after the approval of Bitcoin Futures ETFs in October and Ether Futures ETFs in the same month. Traditional financial institutions have also applied to issue spot Ether ETFs, and given their track record of obtaining SEC approval for their ETFs, it is likely that spot Ether ETFs will be approved as well. However, it is expected that the SEC will approve them only after their Bitcoin counterparts, which means that approval for Ether ETFs may come in late 2023 or early 2024.
If approved, spot Bitcoin and Ether ETFs are expected to attract millions of new investors who were previously unable or unwilling to purchase crypto assets directly. This opens up new opportunities for these investors to gain exposure to the crypto market through regulated investment vehicles.
However, the success of these newly created products may be impacted by the differing investment theses of Bitcoin and Ether, as well as the ability of issuers to integrate the unique features of each asset into spot ETFs. For Ether, in particular, there are doubts about the viability of a spot ETF due to the disparity between the underlying asset and the product offerings. A spot Ether ETF does not allow shareholders to participate in the Ethereum network, which is the primary reason why investors would seek to acquire Ether. On the other hand, Bitcoin, which is widely recognized as a store of value, makes a spot Bitcoin ETF a more straightforward investment proposition.
The investment thesis for Ether revolves around its utility as a token on the Ethereum network. Unlike Bitcoin, which is primarily seen as a store of value and a medium of exchange in some regions, Ether functions as the gas of a technology ecosystem. Users utilize ETH for various purposes, including staking, which involves participating in transaction validation on a proof-of-stake blockchain. This unique role of Ether as a utility token makes it challenging for firms to market spot ETF products that only provide investors with price exposure. Investors do not hold Ether for its decentralization or monetary qualities, and this poses a hurdle for issuers trying to create a compelling investment proposition for a spot Ether ETF.
Another obstacle for Ether ETFs is the lack of mention of staking in current applications, including those from major firms like BlackRock. Staking is central to Ether’s investment thesis, but the SEC has been strict with crypto exchanges offering staking-as-a-service features. This makes it unlikely for issuers to get permission to offer staking via an ETF, further complicating the creation of a spot Ether ETF.
In contrast, Bitcoin ETFs based on current applications do not offer in-kind redemptions, meaning shareholders cannot take custody of their Bitcoin. This introduces additional counterparty risk. However, shareholders do gain exposure to Bitcoin’s price, allowing them to benefit from price appreciation. The store-of-value investment thesis for Bitcoin makes it easier for Wall Street firms to market spot Bitcoin ETF products to financial advisors and retail investors. In anticipation of approval for spot Bitcoin products, traditional financial leaders like BlackRock CEO Larry Fink have changed their rhetoric, no longer dismissing Bitcoin but instead referring to it as an international asset that is digitizing gold and represents a flight to quality for investors.
In conclusion, the approval of spot Bitcoin and Ether ETFs by the SEC is expected to bring in millions of new investors to the crypto market. However, the differing investment theses of Bitcoin and Ether, as well as the challenges in integrating their unique features into spot ETFs, raise doubts about the viability and success of these newly created products. The SEC’s strict stance on staking-as-a-service features and the lack of mention of staking in current applications for Ether ETFs further complicate the creation of a spot Ether ETF. Nonetheless, the store-of-value investment thesis for Bitcoin makes it a more straightforward investment proposition, and traditional financial institutions are already preparing for the potential approval of spot Bitcoin ETFs.