Representation of Ethereum
Fund managers are vying to launch the first US ETFs based on ether, the native cryptocurrency of the ethereum network © Reuters

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Five ETF issuers filed to launch ether futures ETFs last week, in what could become a “winner-take-most” scenario, analysts say.

Grayscale was the first issuer to act, filing on May 9 to launch the Grayscale Ethereum Futures ETF, based on the world’s second-largest cryptocurrency, behind bitcoin.

Direxion, Roundhill Investments and Bitwise followed on May 10 with their own versions, filings show, while Valkyrie lodged an application on May 12.

The Securities and Exchange Commission has not yet approved any ether futures ETFs. At least one firm — Kelly Strategic Management — filed for an ETF that would have invested in ether futures. Soon after, however, the firm withdrew its application.

The SEC, however, has given the green light to ETFs that invest in bitcoin futures. The now-$928mn ProShares Bitcoin Strategy ETF (BITO) was the first to launch in October 2021.

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The SEC has rejected bids for physical bitcoin ETFs due to the potential for fraud and manipulation. SEC chair Gary Gensler has called bitcoin a “Wild West” market that leaves investors less protected than stock and bond markets.

If approved by the SEC, the five ETFs will invest primarily in ether futures traded on the Chicago Mercantile Exchange, the filings show.

Ether is the native cryptocurrency of the ethereum network, a “decentralised network of computers that operates on cryptographic protocols”, Grayscale’s filing notes. The funds will not invest directly in ether or any digital assets.

The five ETFs’ investment strategies are largely the same, prospectuses show. They will invest in wholly owned subsidiaries organised under the laws of the Cayman Islands.

Representatives from the issuers did not respond to requests for comment.

“No news is good news for bitcoin futures ETFs, and it’s a good sign for the prospect of futures-based ether ETFs, as well,” said Bryan Armour, director of passive strategies research for North America at Morningstar. “There isn’t any evidence that bitcoin ETFs were a failed experiment for the SEC, so this may be the right time for these funds to be approved.”

Shortly after it launched, the ProShares Bitcoin Strategy ETF amassed $1bn in assets at a faster pace than any previously launched ETF. However, its net asset value plunged 63.7 per cent in 2022. Since its inception, market depreciation has erased $1.3bn in investor assets.

Other bitcoin futures ETFs, such as ones from VanEck and Valkyrie, have struggled to keep up. The VanEck ETF has just $41mn in assets and Valkyrie’s has $30mn, respectively, according to FactSet data.

There was a “good case” for the SEC to approve the ether futures ETFs for the same reason that they approved the bitcoin futures ETFs in the first place, noted Matt Apkarian, associate director for product development at Cerulli Associates.

“The fact that these are digital asset futures doesn’t really change what the SEC needs to see relative to any other futures-based exchange-traded products,” Apkarian said.

Grayscale might also be calling the SEC’s bluff in regard to its statements in favour of futures-based crypto ETFs, Armour noted.

In June Grayscale sued the SEC after the regulator rejected its bid to convert its Bitcoin Trust into an ETF. The firm claimed in the lawsuit that the SEC had no grounds to reject a spot bitcoin ETF after approving futures ETFs. The suit is ongoing.

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The “rest of the pack” might just be jumping in line, in case the SEC approved these ETFs, rather than signalling increased optimism that they would be given the go-ahead, Armour said.

Roundhill and Direxion do not currently offer any crypto-related products. Bitwise, meanwhile, runs a $477mn 10 Crypto Index Fund and $70mn Crypto Industry Innovators ETF (BITQ), which invests in companies that derive most of their revenue from the crypto ecosystem, not crypto directly.

In March, Bitwise launched the Bitwise Bitcoin Strategy Optimum Roll ETF (BITC), a futures ETF designed for long-term investors.

“I wouldn’t be surprised to see this become somewhat of a winner-take-most scenario like we saw with BITO,” Apkarian said, referring to ProShares’ Bitcoin futures ETF. “I think the first-mover advantage is likely why we are seeing so many firms trying to launch so quickly right now.”

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