Which ether ETF is the best to invest in? Here's what spot bitcoin ETFs taught us.

MW Which ether ETF is the best to invest in? Here's what spot bitcoin ETFs taught us.

By Frances Yue

The first nine spot ether exchange-traded funds in the U.S., which began trading on Tuesday, share many similarities with their bitcoin counterparts while differing in some aspects.

Similar to bitcoin ETFs, most issuers have launched ether ETFs with fee waivers, which see no fees or very low fees for six months to a year, or until the assets reach a certain amount that can range anywhere from $500 million to $10 billion. Most issuers have kept the fees of their ether ETFs in line with their bitcoin counterparts.

Akin to bitcoin ETFs, the fee war "is an indicator of how competitive the market is," as issuers operate within tight margins, analysts at Kaiko wrote in a recent note.

Still, in the case of bitcoin ETFs, the Grayscale bitcoin trust GBTC, which was converted to an ETF from a closed-end fund in January and had the highest fee among all similar ETFs, has seen the highest net outflow of $18.6 billion. GBTC is still the second largest bitcoin ETF, with $18.6 billion assets under management as of Monday.

On the flip side, the other 10 spot bitcoin ETFs have seen an aggregated net inflow of $35.7 billion, overshadowing GBTC's outflow. BlackRock's iShares Bitcoin Trust IBIT has been the most-popular bitcoin ETF, with $18.9 billion inflows so far, pushing it to become the largest bitcoin ETF as of Monday. Fidelity Wise Origin Bitcoin Fund FBTC and ARK 21Shares Bitcoin ETF followed closely behind in terms of inflows, with the funds seeing $10 billion and $2.6 billion inflows so far, respectively.

However, the landscape may be different for ether ETFs, according to David Lawant, head of research at Falcon X.

The consensus is that ether ETFs will see much less inflows than the bitcoin counterparts, with analysts expecting 15% to 25% of bitcoin ETF inflows.

In addition, while analysts are expecting significant outflow from the Grayscale Ethereum Trust ETHE, as it charges the highest fee of 2.5% among all ethereum ETFs, the asset manager is implementing a different strategy this time.

Along with the conversion of ETHE to an ETF, Grayscale also launched an Ethereum Mini Trust ETH, which comes with a fee of 0.15%, the lowest among all spot ether ETFs. ETHE had $9.19 billion assets under management as of Monday.

Grayscale's Ethereum Mini Trust has an initial seeding from the distribution of 10% of ETHE's underlying ether. It means that starting Tuesday, holders of ETHE will automatically see themselves owning positions in both ETHE and and the mini trust. If they had $100 in ETHE, they would now have $90 in ETHE and $10 in the mini trust.

Such a strategy may help curb the initial outflows from ETHE to some extent, Lawant said.

Greg Cipolaro, global head of research at NYDIG echoed the point. "This move by Grayscale would allow them to compete for inflows while maintaining a high-fee ETF with significant assets under management," Cipolaro wrote in a recent note.

"Unlike the launch of bitcoin ETFs, where a low-cost 'accumulation' fund was lacking, Grayscale is now positioned to compete for inflows. Therefore, the battle for market share will depend more on the marketing and distribution efforts of the different sponsors this time around rather than fees," he added.

Ether dipped 0.4% on Tuesday to around $3,473, according to Dow Jones Market Data.

-Frances Yue

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July 23, 2024 17:00 ET (21:00 GMT)

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