Spot Ethereum ETF approval is looming: 2 reasons to avoid

On Jul 9, 2024

Ethereum price has crawled back in the past two days as investors focus on the approval of spot Ethereum ETFs by the Securities and Exchange Commission (SEC).

ETH price rose to $3,112 on Tuesday, 10.5% above where it traded at last Friday. There are hopes that the SEC will approve ETFs soon as companies continue filing their final documents with the agency.

VanEck submitted its amended filing on Monday, while Invesco filed on Tuesday morning. Bitwise and 21Shares have also made their filings. Analysts believe that these funds could start trading as soon as this week.

First S-1 just rolled in today from VanEck.. they already had their fee so nothing to see here really, they just putting ball back in SEC’s court. Expecting the rest today except for Bitwise who did theirs last week. pic.twitter.com/gF6OZTKIrs
— Eric Balchunas (@EricBalchunas) July 8, 2024

These funds come a few months after the SEC approved spot Bitcoin ETFs, which have seen over $14 billion in inflows.

2 reasons to avoid spot Ethereum ETFs

Ethereum funds will provide non-traditional crypto investors a good way to track the price of Ethereum without the need to deal with some of the complexities of crypto, such as wallet keys. As such, funds will be ideal for large institutional investors who find it overly complex to deal with real coins.

However, there are two main reasons why investors should consider investing in Ethereum instead of ETFs.

First, buying and holding ETF in a hot or cold wallet is in reality a relatively simple process. One can easily do that using one of the popular exchanges like Binance, Coinbase, and OKX, crypto.com, among many others.

After buying Ether, the only fee that customers pay is when they are selling their coins to exit the investment.

In contrast, Ethereum funds will have an expense ratio, likely around 0.25%. In its filing, Invesco Galaxy revealed that its fund will have a unified sponsor fee of 0.25%. This means that a $100,000 investment will attract an annual fee of about $250. Over ten years, if Ether remains steady, an investor would pay $2,500 in fees.

The fee differential explains why Bitcoin has had a better return than spot Bitcoin ETFs. In the past six months, Bitcoin has risen by 24.31% while the other ETFs have risen by about 20.7%. This spread will compound over time.

Bitcoin vs IBIT vs FBTC vs ARKB ETFs

Second, Ethereum funds will not have staking features, which provides steady income to investors. Data compiled by StakingRewards shows that the total staked Ether stands at over $100 billion, giving it a staking ratio of 27.16%. It has a yield of about 3.29% and a $100k investment will return nearly $3,300 a year.

Therefore, since Ether and spot ETH ETFs will move in sync, it seems like a better idea to just stake Ether.