By Hannah Lang and Suzanne McGee
(Reuters) – U.S. exchange-traded funds (ETFs) tied to the price of ether enjoyed a strong debut on Tuesday, with $1.07 billion worth of shares changing hands in the products, according to CF Benchmarks, a digital asset index provider, Bitwise Asset Management and traders.
The most actively traded ETFs were Grayscale's Trust, with more than $450 million in turnover, iShares Ethereum Trust, with about $245 million in trades, and Fidelity Advantage Ether ETF, with $137 million, Bitwise said.
Products from Franklin Templeton, VanEck, Bitwise, 21Shares and Invesco also began trading on Tuesday.
Following the launch of nine U.S. spot bitcoin ETFs in January, the ether products mark another victory for the cryptocurrency industry's campaign to push digital assets into the mainstream, although the products are unlikely to see the same volume of inflows, analysts said.
Trading volumes on Tuesday fell short of the $4.6 billion traded in bitcoin ETFs in their January debut. Data on ether ETF inflows will be available starting Wednesday morning.
“Although ether ETFs may not attract as much investment as bitcoin ETFs, they represent an important step in the development of the cryptocurrency market,” said Grzegorz Drozdz, market analyst at investment firm Conotoxia Ltd.
The price of ether, the world’s second-largest cryptocurrency after bitcoin, fell on Tuesday, pushing down prices for new ETFs, according to CoinGecko, a cryptocurrency data firm. After the market closed, ether was trading unchanged at $3,486.75, according to CoinGecko.
Market participants view the introduction of ETFs as important to the industry's long-standing effort to classify ether as a commodity rather than a security.
While the Securities and Exchange Commission has not explicitly said that ether is a commodity, the new products are defined in filings as commodity-based trusts.
The debut enhances the “legitimacy” of the cryptocurrency market, Cristiano Ventricelli, a senior digital asset analyst at Moody’s (NYSE:) Ratings, wrote in a Tuesday report, adding that cryptocurrency ETFs would help boost market stability and reduce volatility.
The Bitcoin ETF launches were the culmination of a decade-long fight with the SEC, which had rejected the products due to concerns of market manipulation.
The agency was forced to give the green light to the ETFs after losing a legal challenge brought by digital asset manager Grayscale Investments, although it warned when approving them that the products remained very risky.
The launch was one of the most successful in the history of the ETF market, with the products attracting $33.1 billion in net inflows through June, according to Morningstar Direct data.
ETF issuers competed fiercely on fees, with many firms offering to waive them entirely for a set period of time.
Fees on ether ETFs range from 0.19% for Franklin Templeton’s ether ETF to a maximum of 2.5% for Grayscale’s ether trust, which is converting into an ETF, according to its public offering documents. The rest are around 0.25%.
In general, fees are comparable to those of Bitcoin products, although issuers offer fewer exemptions.
Grayscale launched a “mini” version of its Ether ETF with a fee of just 0.15%.
While estimates on demand for ether products vary widely, Galaxy Research (whose sister company Galaxy Asset Management has a pending ether ETF with Invesco) has projected they could attract monthly inflows of $1 billion.
Matteo Greco, a research analyst at Fineqia International, wrote in a note that demand for ether ETFs will be crucial in determining investor appetite for digital assets beyond bitcoin.
A major issue for some investors is the SEC’s exclusion of the “staking” mechanism in ether ETFs, a key feature of the ethereum blockchain that allows users to lock up their tokens for a set period of time in exchange for a return. As currently structured, the SEC will only allow ETFs to hold regular ether, with no staking.
Issuers began filing applications for ether ETFs in September. Executives initially held out little hope that the SEC would approve the products, but the agency surprised the industry in May when it approved the first necessary rule changes.
SEC Chairman Gary Gensler told Reuters last month that the Grayscale ruling had influenced his thinking about approving ether products because the underlying market circumstances were similar.
