Guide to What Ethereum ETFs Are

ETFs have been one of the most important instruments to cross over from traditional finance (TradFi) into crypto. The highly anticipated arrival of the first-ever spot Bitcoin ETFs in the United States reenergized the industry and captured mainstream attention. This excitement also extended to several high-profile spot Ether ETF applications which, in a surprise turn from US regulators, were approved just months after the spot Bitcoin ETFs.

Yet, the long-term consequences of ETFs on crypto remain to be seen. For all the welcome energy they bring to the ecosystem, their custodial approach contradicts some of crypto’s founding philosophies around individual ownership. 

So what exactly are spot Ether ETFs? How do they differ from other kinds of ETFs, and should you buy shares in an ETF or just buy crypto directly? Ledger Academy breaks it all down in this article.

Let’s dive in.

What Is an Ethereum ETF?

An exchange-traded fund (ETF) is a type of financial instrument that tracks the performance of a group of assets, such as stocks or bonds. The idea is that ETFs can give investors exposure to certain groups of assets without having to trade those assets individually. 

In Ethereum’s case, these instruments generally fall into two categories: spot and futures Ethereum ETFs. While a futures Ether ETF utilizes derivative contracts to track the price of ETH without holding the underlying asset, a spot Ether ETF takes a different approach.

Spot Ether ETFs specifically track the real-time value of ETH, aka its “spot” price. To do this, these funds hold a certain amount of ETH, which is how they back up the shares of the ETF. Similarly to spot Bitcoin ETFs, spot Ethereum ETFs essentially allow investors to bet on Ether’s price without having to buy or store ETH themselves.

How Spot Ethereum ETFs Work

The process of creating an ETF begins with a fund provider like an asset management fund, buying and holding a certain amount of Ether (ETH). The provider then issues shares in that fund – based on the amount of ETH in the fund and market demand – which investors can purchase like stocks. The fund provider also automatically deducts a small annual fee, called an expense ratio, from the held assets over time. 

Because the fund directly holds Ether, the value of the ETF is directly linked to Ether’s price, meaning that when it rises or falls, investors expect the value of the ETF to rise or fall similarly.  If the ETF shares begin trading significantly above or below the price of Ether, the fund provider can create or redeem ETF shares to bring the prices back into alignment.

Approved Ethereum Spot ETFs

Ethereum ETFs List

1. Grayscale Ethereum Mini Staking ETF (ETH),
2. Franklin Ethereum Trust (EZET)
3. VanEck Ethereum Trust (ETHV)
4. Bitwise Ethereum ETF (ETHW)
5. 21Shares Core Ethereum ETF (CETH)
6. Fidelity Ethereum Fund (FETH)
7. Blackrock iShares Ethereum Trust (ETHA)
8. Invesco Galaxy Ethereum ETF (QETH)
9. The Grayscale Ethereum Staking ETF (ETHE)

Spot Ethereum ETFs comparison by fee

Understanding the Pros and Cons of Ethereum ETFs

Advantages of Ethereum ETFs

Convenience

Some people see Ethereum ETF as a more straightforward way to gain exposure to Ethereum. To explain, you buy spot Ether ETFs on conventional stock exchanges and brokerage platforms, the same way you would buy stocks and bonds. 

This is usually easier for the average person than buying Ether themselves. This is good for investors who are curious about crypto but intimidated by the process of buying and securing their cryptocurrencies. Or for those who might prefer to gain exposure to crypto via a traditional, regulated financial instrument.

Regulatory Clarity and Increased Adoption

Perhaps the most talked about benefit of spot crypto ETFs is their effect on cryptocurrency adoption. For one thing, giving investors a way into crypto that is familiar to them helps attract people who may have been discouraged by the complexities of buying and holding cryptocurrency as a newcomer. 

What’s more, the approval of Spot Bitcoin ETFs and Spot Ether ETFs in the US was widely seen as an institutional stamp of approval. After receiving SEC approval, crypto ETFs provided a route into crypto with clear, well-established rules and regulations. Not to mention that many also viewed the presence of large, well-established financial institutions forming their own ETFs as a sign of a maturing crypto market. 

All of this helps make crypto a more attractive investment class to more people, thus increasing cryptocurrency adoption in the long run.

Contribute to the Overall Liquidity of the Ethereum Market

Spot Ethereum ETFs can add major liquidity to Ether markets simply by offering investors more options on how to gain exposure to Ethereum. Investors can access spot crypto ETFs through conventional brokerage firms, making it easier for investors to participate in the market and creating larger trading volumes and more efficient, more liquid markets.

Disadvantages of Ethereum ETFs

Management fees

While some may find buying ETFs more convenient than buying cryptocurrency directly, that convenience comes at a cost, specifically management fees. When buying ETF shares, you can expect the fees to be much higher than if you were buying an equivalent amount of Ethereum directly.  

ETF Price Inaccuracy

Cryptocurrencies like Ether and Bitcoin have a reasonable reputation as volatile digital assets and, as crypto-based assets, ETFs are no different. That is to say, investors should be aware of the market fluctuations that impact the value of a spot Ethereum ETF. 

As discussed previously, market sentiments and demand play a major role in the price of ETF shares. That means that even for spot Ethereum ETFs designed to track Ether’s real-time price, there can often be a difference between the value of an ETF and the value of an ETF’s underlying digital asset. In theory, the value of your ETF shares may dip below the equivalent Ethereum value. That being said, ETF providers can always reduce the number of shares in the fund to bring prices back into alignment.

Limits to cryptocurrency trading

ETFs are sold on conventional stock exchanges and brokerage platforms which means that they are only available during the business hours of the exchange. This can be a problem if you ever need to make a trade outside of these times. In contrast, if you practice self-custody, you can transact with your crypto whenever you want. A dedicated Ethereum wallet gives you exactly that freedom – access to your ETH at any hour, without relying on exchange opening times.

Lack of Ethereum ownership

The biggest challenge with Ethereum ETFs is that they do not represent real ownership of Ethereum (ETH). While this is not completely negative – it can still bring people into the ecosystem – it’s ultimately at odds with the philosophy that crypto was initially founded on. If you’d prefer to buy Ethereum directly and take full ownership, you can avoid this limitation entirely.

Spot Ethereum ETFs vs. Ethereum: What is the difference?

Alternative Investment to Ethereum ETFs

Why Self-Custody With Ledger Is the Ultimate Alternative

Spot Ether ETFs have opened the door for a new wave of investors, and while that’s good news for Ethereum adoption, ETFs come with inherent limitations. 

The ETF model requires a fund to hold ETH on your behalf, a structure that fundamentally contradicts the very blockchain ethos of financial self-sovereignty. This means that when you invest through an ETF, you choose to relinquish control of your private keys and direct access to your ETH. In short, you become the audience to your own play.

The Ledger ecosystem removes these barriers, ensuring you retain full, unmediated ownership of your ETH via your Ledger signer, which holds your private keys offline. Unlike ETF shares, which are bound by exchange operating hours, you can access your self-custodied ETH anytime. Moreover, you can interact with the Ethereum ecosystem within the Ledger Wallet^TM, including staking and swapping Ethereum.

Final Thoughts on ETH ETFs

Spot Ethereum ETFs occupy a useful space in the wider ecosystem, opening crypto to people who might not otherwise consider it. At the same time, buying into an ETF reintroduces the third-party risks that crypto was built to remove.

The permissionless nature of crypto is what makes it different, and self-custody is how you access it. Ledger signers let you secure and manage your digital assets while keeping your keys offline. With Ledger Wallet, you can also buy crypto directly through integrated providers, with your Ledger signer protecting every transaction.

If you’re considering exploring what crypto has to offer, there’s no need to wait. Explore the Ledger ecosystem today to start your journey to secure self-custody.

FAQs about Ethereum ETFs

Are Ethereum ETFs Approved?

After months of anticipation, the SEC finally approved the first spot Ethereum ETFs in May 2024.

When Did Spot Ethereum ETFs Start Trading?

The nine US spot Ether ETFs began trading on July 23, 2024, netting a combined first-day trading volume of more than $1 billion. This marked a slower start than spot Bitcoin ETFs, which saw roughly $4.66 billion in volume on their first trading day in January 2024.

Which Ethereum ETF is Best?

While the nine spot Ether ETFs function similarly, there are some differences that may impact your decision on which to buy. When looking at the best Ethreum ETFs, consider things such as the size of the fund or total asset holdings, its track record of inflows and outflows, and what fees it charges. But also your goals, and risk tolerances.

How to Buy Ethereum ETFs?

You buy Ether ETFs with fiat currency, just as you would a stock or bond. Before you buy into a spot ETH ETF however, it’s important to consider the drawbacks that come with them. Remember, buying shares in a crypto ETF does not give you true ownership of that cryptocurrency, which means you lose out on the very benefits that crypto was made for. The only way to access those benefits is through self-custody, which gives you full control over your digital assets and eliminates third-party risk.

Where to Buy Ethereum ETFs?

As the name suggests, ETFs are available on traditional regulated exchanges, including the Nasdaq and the New York Stock Exchange. You can also buy and sell shares of spot Ether ETFs on just about any online brokerage platform that offers traditional assets like stocks and bonds.

How to Buy Ether?

To buy Ether using fiat currency, you’ll want to use an on-ramp. Ledger offers seamless on-ramping within the Ledger Wallet ecosystem, via partners like MoonPay and Coinify. Here, you can easily buy (and sell) cryptocurrencies using your regular credit card, in conjunction with your Ledger device.