With the deadline for a decision on the approval of a spot ether ETF by the U.S. Securities and Exchange Commission (SEC) approaching, industry experts are weighing the potential uptake of such a fund.
Some say investing in an ether ETF wouldn’t make sense as such funds won’t likely allow staking reward distribution. Investors, they argue, would thus be better off buying and staking their own ether {{ETH}}.
But VanEck, the global investment firm whose Bitcoin Trust (HODL) is among the 10 spot bitcoin ETFs that became available earlier this year, thinks an ether ETF could attract huge demand.
“From a market perspective, part of me believes that the market size for a spot ETH ETF is potentially as big if not bigger than the spot bitcoin ETFs,” said VanEck Portfolio Manager Pranav Kanade.
That would be a tall task given the more than $10 billion of net inflows into the spot BTC products in only about two months of availability.
“The world of investors who are looking for cash producing assets is massive and ETH obviously generates fees that goes to the token holders,” explained Kanade. “Even if you don’t have an ETF that can offer staking as a part of it, it’s still a cash producing asset, so I think ETH could make more sense as an asset to more people than Bitcoin does.”
As the Ethereum uses a Proof of Stake consensus mechanism, holders of ether can earn yield by “staking” or putting their tokens to work on the blockchain. On Coinbase, for instance, ETH stakers can earn about a 3% yield.
Still, the odds of SEC approval of spot ETH products are far from assured. Analysts at Bloomberg recently lowered the chances of a regulatory green light – even without the staking aspect – to just 30% For his part, Kanade places the odds at more like 50%.
HODL fee cut
VanEck, which has over 68 ETFs under its umbrella, earlier this week temporarily cut the management fee on its Bitcoin Trust from 0.2% to 0%. The 0% remains in place until March 2025 or the fund gets up to $1.5 billion in AUM..
“Initially we were one of the few that did not do a short term waiver, we came out very aggressively at a low fee right from the start and I had always thought that that was the right level to be at but I think our thinking was that historically with ETF launches, the short term waivers have not gone over that well and frankly, they can be a little confusing, and maybe have a lack of transparency as to how they work,” said Kyle DaCruz, director of digital assets products at VanEck.
“But we listened to our investors and it’s clear that that was important to investors in the market so we shifted,” he continued. “Relative, we’d like to do better and part of that initiative is that fee waiver.”
The move so far is an apparent success. In the roughly two months from launch until the fee trimming this week, HODL had attracted about 4,300 bitcoin and just shy of $300 million in AUM. In the handful of days since, the fund has ballooned to more than 7,200 bitcoin and $527 million in AUM.
That level places HOLD fifth in AUM among the nine new spot bitcoin ETFs (excepting Grayscale’s GBTC), behind BlackRock, Fidelity, ARK/21Shares and Bitwise, and ahead of Invesco/Galaxy, Franklin Templeton, Valkyrie and WisdomTree.
Currently, only about 1% of the firm’s AUM is in crypto, but VanEck CEO Jan Van Eck would like that number to be much larger, according to Kanade.
“Jan’s aspiration is to have crypto be 15% of the AUM base one day in the future,” he said. “Sooner rather than later.”