Sebastian Sinclair

In a move that could have far-reaching developments for the US crypto market, 21Shares and Ark Invest jointly filed for a spot ether ETF this month. Industry analysts have been quick to weigh in on the broader implications.&nbsp;



Sacha Ghebali, the director of strategy at The Tie, believes the filing might trigger substantial capital inflows into Ethereum. This is because financial advisors frequently allocate a significant portion of their assets under management (AUM) to ETFs.



Ghebali said that while bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) has primarily captured attention as a store of value, in contrast, ether (<a href="https://blockworks.co/price/eth">ETH</a>) could emerge as an &#8220;infrastructure play,&#8221; a term that underscores its role in powering a wide range of decentralized applications and services.&nbsp;



However, the regulatory path for ether remains fraught with complexities, according to Conor Ryder, head of research and data at crypto infrastructure company Ethena.&nbsp;



To gain approval, an <a href="https://blockworks.co/tag/ether-etfs">ether ETF</a> will need to demonstrate market features comparable to those of bitcoin, such as having liquid spot and futures markets and listings on regulated exchanges like CME.



It’s worth noting that the announcement of the spot ether ETF filing has not caused a marked shift in ether’s social media sentiment, according to data from The Tie.&nbsp;



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Even still, both Ghebali and Ryder agree on the importance of social media in shaping crypto market dynamics.&nbsp;



While the short-term sentiment did not show significant fluctuations, social media remains an invaluable yardstick for gauging a project&#8217;s potential for mainstream acceptance. This in turn can have an influence on the asset’s price, they said.&nbsp;



Ghebali noted that while there was a discernible uptick in tweet volume and sentiment data following the ETF filing, it did not indicate a sustained shift in long-term sentiment regarding the price.



This suggests that although the news caught attention, it may not be the sole determinant for ether’s market behavior in the short term, the analysts argue.



As for the market outlook for the rest of the year, Ryder cautions that the current low liquidity environment makes short-term price predictions especially challenging.&nbsp;



Prices tend to be volatile when there&#8217;s little depth on order books, he added.&nbsp;



Nevertheless, both Ghebali and Ryder have a long-term bullish outlook for the world’s second-largest digital asset as well as the broader crypto markets.&nbsp;



They expect the next wave of capital to enter the space and fuel further growth, once ether clears remaining regulatory hurdles.



Read more: <a href="https://blockworks.co/news/grayscale-victory-spot-ether-etf">Grayscale court victory used in arguments for spot ether ETF&nbsp;</a>



“Although it seems generally clear that bitcoin is not a security, the fate of ETH seems less clear, in particular, because of the staking mechanisms and the protocol development leadership dynamics,” Ghebali said.



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Ether spot ETF: Market implications and tracking social sentiment

Ben Strack

As the Securities and Exchange Commission considers a swath of spot bitcoin ETFs and ether futures funds, Ark Invest and 21Shares aim to introduce their own spot ether offering to the market.



The companies’ Wednesday filing for its Ark 21Shares Ethereum ETF represents a rare bid for such a product in the US — marking another example of the two firms looking to build out a full crypto product lineup.



Unlike <a href="https://blockworks.co/news/eth-related-etf-proposals">recently filed-for ether futures ETFs</a>, the new planned offering by Ark Invest and 21Shares would hold ether directly.&nbsp;



ETH’s market capitalization was roughly $195 billion, as of 2 pm ET. That is second in the crypto sphere behind only bitcoin, which sports a $500 billion market cap.&nbsp;&nbsp;&nbsp;&nbsp;



The proposed fund, if approved, would trade on the Cboe BZX Exchange, the <a href="https://www.sec.gov/Archives/edgar/data/1992508/000119312523229449/d450565ds1.htm">filing</a> notes. The document did not reveal a ticker or fee for the planned ETF.



An SEC spokesperson declined to comment on the filing.



<h2 class="wp-block-heading">Why now?</h2>



Recent developments over the last weeks and months suggest it&#8217;s an opportune moment to start expanding conversations around ether products, according to people familiar with the filing. The sources were granted anonymity to discuss the sensitive information.&nbsp;&nbsp;



The latest filing comes at a time when the SEC — which for years has blocked fund issuer attempts to launch ETFs that hold bitcoin directly — appears to be on its back foot <a href="https://blockworks.co/news/grayscale-sec-spot-bitcoin-etf">after a court loss to Grayscale Investments</a> last month.



The DC Circuit Court of Appeals in that case ruled that the SEC’s decision to approve bitcoin futures products, but not Grayscale’s conversion of its Bitcoin Trust (GBTC) to an ETF, was “arbitrary and capricious.”&nbsp;



After the decision, Bloomberg Intelligence analysts upped their chance of US spot bitcoin ETF approval before the end of 2023 from 65% to 75%. They believe such a product has a 95% chance of being approved by the end of 2024.&nbsp;



Before that Grayscale ruling, a range of fund issuers filed for ether futures ETFs in July and August. Sources told Blockworks last month that the SEC had told firms it was <a href="https://blockworks.co/news/sec-consider-ether-futures-etfs">ready to consider such products</a> after asking companies <a href="https://blockworks.co/news/sec-consider-ether-futures-etfs">to withdraw similar proposals</a> earlier in the year.



Regulators in other jurisdictions that have become comfortable with crypto products did not stop at just approving bitcoin-related funds, people familiar with the Ark 21Shares Ethereum ETF filing told Blockworks.&nbsp;



Canada, for example, became the first country to approve a spot ether ETF in April 2021 — a couple months after it allowed spot bitcoin ETFs to start trading.&nbsp;&nbsp;&nbsp;



New York-based fund group VanEck soon after <a href="https://www.bloomberg.com/news/articles/2021-05-07/vaneck-fires-starting-gun-in-race-for-first-u-s-ether-etf">filed</a> to launch a spot ether ETF in the US. Investment firm Kryptoin followed suit with a similar proposal that August.



<h2 class="wp-block-heading">Looking to build a suite&nbsp;</h2>



Ark Invest, an asset manager led by Cathie Wood, first partnered with Swiss ETP issuer 21Shares <a href="https://blockworks.co/news/ark-files-for-bitcoin-etf">to launch a spot bitcoin ETF in 2021</a>.&nbsp;



Though the SEC rejected their first two tries to launch such a fund, the firms most recently re-filed for a spot bitcoin product in April. This came two months before <a href="https://blockworks.co/news/blackrock-clout-bitcoin-etf-approval">BlackRock revealed plans to try to launch a bitcoin ETF</a>, spurring other fund issuers to jump back into the race.



About two weeks after the SEC said on Aug. 11 <a href="https://blockworks.co/news/sec-delays-bitcoin-etf-decision">it needed more time to review the spot bitcoin ETF proposal</a> by Ark Invest and 21Shares, the companies shared plans <a href="https://blockworks.co/news/ark-21shares-ethereum-etf">to launch ​two funds that would hold ether futures contracts</a>.&nbsp;&nbsp;



The two firms are also listed as sub-advisers on <a href="https://blockworks.co/news/ark-21shares-spot-bitcoin-etf">three proposed crypto funds</a> that incorporate bitcoin futures contracts.&nbsp;



While the bid for a spot ether ETF represents a milestone filing, such an application was not exactly unexpected.&nbsp;



Read more: <a href="https://blockworks.co/news/ethereum-spot-etf-coming">Bitcoin ETFs are all the rage — why not Ethereum?</a>



Neena Mishra, director of ETF research at Zacks Investment Research, told Blockworks in June she wouldn’t be surprised to see a spot ether ETF application in the coming weeks.&nbsp;



“If one issuer starts the process, others would quickly join the race, not wanting to be left behind,” she noted at the time.



Townsend Lansing, head of product at CoinShares, said in June that if fund issuers pursued spot ether ETFs, the SEC would likely reject them.



Updated Sept. 6, 2023 at 5:51 pm ET: A previous version of this article stated the Ark Invest and 21Shares bid for a spot ether ETF was the first of its kind. However, VanEck filed for such a product in 2021.



Updated Sept. 6, 2023 at 2:09 pm ET: Added response from SEC.



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Race for a spot ether ETF begins with bid from Ark Invest, 21Shares

The US Securities and Exchange Commission has seen a surge in crypto ETF proposals from fund issuers, drawing significant attention. But the importance of the funds, and the potential market moves they could spur, go beyond just headlines, industry executives told Blockworks.&nbsp;



While spot bitcoin ETFs could bolster the asset’s adoption among newer investors, as well as BTC’s price and liquidity, ether futures ETFs — perhaps set to launch first — could lower bitcoin dominance and drive outperformance for a range of tokens.&nbsp;



<h2 class="wp-block-heading">Where we’re at</h2>



A new wave of spot bitcoin ETFs commenced when <a href="https://blockworks.co/news/blackrock-clout-bitcoin-etf-approval">BlackRock revealed plans</a> to launch such a product for the first time. Ark Invest and 21Shares had re-filed for a similar product roughly two months prior.



Read more: <a href="http://v">Did BlackRock have inside info on bitcoin ETF? Bitwise CIO says probably not</a>



Then, <a href="https://blockworks.co/news/volatility-shares-eth-futures-etf">Volatility Shares</a>, at the end of July, kicked off what ended up being <a href="https://blockworks.co/news/eth-related-etf-proposals">a surge of filings for ETFs</a> that would hold ether futures contracts.&nbsp;



After roughly 10 years of attempts by fund groups to launch a spot bitcoin ETF, the SEC has never permitted one to come to market. Plans for an Ether futures ETF, submitted to the regulator in May, were paused. At the time, <a href="https://blockworks.co/news/sec-ether-futures-etfs">sources informed Blockworks</a> that the regulator had requested this halt.&nbsp;



Earlier this month, sources indicated that the <a href="https://blockworks.co/tag/sec">SEC</a> is now ready to consider ether futures ETFs. Volatility Shares noted last week it intends to list its ether futures ETF on Oct. 12, though the SEC could still reject the proposal.&nbsp;



The SEC, meanwhile, could take until early 2024 before ruling on the proposed spot bitcoin ETFs.&nbsp;&nbsp;



<h2 class="wp-block-heading">The impact of spot BTC funds, if approved</h2>



Bakkt CEO Gavin Michael told Blockworks that potential spot bitcoin ETF approval “points to a breath of new life in the industry, and adoption of crypto from investors that had not yet had exposure to the asset class before.”



Assets under management in ETFs was $9.6 trillion in 2022, according to Statista. In addition to being readily available to retail investors on brokerage platforms, ETFs are a preferred tool of financial advisers.&nbsp;



A June <a href="https://engage.financialplanningassociation.org/2023-investing-trends">survey</a> by the Journal of Financial Planning and the Financial Planning Association found that more than 90% of advisers use or recommend ETFs.



That preference is reflected in adviser attitudes toward crypto, as an April 2022 survey by Nasdaq found that 72% of financial advisers would be more likely to invest client assets in the segment if a spot bitcoin ETF were offered in the US. Similarly, 32% of financial professionals cited “lack of easily accessible investment vehicles like ETFs and mutual funds” as a barrier to crypto allocation, according to a January <a href="https://s3.amazonaws.com/static.bitwiseinvestments.com/Research/The-Bitwise-VettaFi-2023-Benchmark-Survey.pdf">report</a> by Bitwise and VettaFi.



Michael noted that plans by a company such as BlackRock to launch a bitcoin ETF “act as a stamp of institutional approval to new investment and growth.”



<a href="https://blockworks.co/tag/blackrock">BlackRock</a> — with more than $9 trillion in assets under management — is in a position to offer “unparalleled distribution” for its spot bitcoin ETF, if approved, according to Seth Ginns, head of liquid investments at CoinFund.&nbsp;



“It also continues the trend of opening up new and easier avenues for institutions to own crypto,” Ginns told Blockworks. “Any fund that can own equities can own the bitcoin spot ETF, and it fits more easily into traditional financial plumbing.”



Nearly a dozen firms vying for a spot bitcoin ETF collectively manage around $15 trillion in assets, according to Ruslan Lienkha, the markets chief at Swiss fintech platform YouHodler. Even a tiny portion of this capital shifting to a bitcoin ETF could translate to tens of billions of dollars.



Read more: <a href="https://blockworks.co/news/approved-spot-bitcoin-etf-launch-size">An approved spot bitcoin ETF could be ‘one of the largest launches in history’</a>



“Thus an ETF approval can boost the price of BTC initially, and then make it more stable and less volatile over time,” Lienkha said in a statement. “Basically, we will see much more liquidity in order books at the main trading venues.”&nbsp;



During a webinar earlier this month, Matt Hougan, chief investment officer of prospective spot bitcoin ETF issuer Bitwise, predicted that a US spot bitcoin ETF could attract $55 billion in net flows in its first five years on the market.



<h2 class="wp-block-heading">Ether futures funds could spur ‘big token moves’</h2>



As for ether futures ETFs, Ginns said those products hitting the market could set <a href="https://blockworks.co/price/eth">ETH</a> on a new trajectory, the way bitcoin futures ETFs did, in part, for BTC.&nbsp;



Bitcoin hit its all-time high price of roughly $69,000 in November 2021 about a month after the launch of the first bitcoin futures ETFs.&nbsp;



While BTC’s price is up about 56% so far in 2023, the price of ETH has increased roughly 37% since the start of the year. The market cap of Bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) was at $505 billion early Friday afternoon, representing a bitcoin dominance of 46.4%, according to CoinGecko. ETH’s market cap stood at about $198 billion.&nbsp;



“Ether has lagged bitcoin [year to date] and this could be a catalyst for that to reverse, especially given this year’s meaningful technical upgrades,” Ginns said. “We’d expect bitcoin dominance to continue to come down on an ether futures ETF approval, meaning a broad group of tokens should see outperformance.”



The CoinFund executive added that he expects “fundamentally driven tokens” to show strong performance as builders continue to build — and as new launches such as Coinbase’s layer-2 network, Base, and <a href="https://blockworks.co/news/friendtech-social-token">decentralized social network Friend.tech</a> are seeing good engagement.



Ginns said: “If the ETF approvals drive that risk-on, dominance declining environment…we could see big token moves.”



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Why potential BTC and ETH ETF approvals would be game-changers

Firms viewed by many as leading contenders in the bitcoin ETF race are also keen on launching funds associated with ether futures contracts.



Ark Invest and 21Shares are listed as sub-advisers on the proposed ARK 21Shares Active Ethereum Futures ETF (ARKZ) and the ARK 21Shares Active Bitcoin Ethereum Strategy ETF (ARKY), according to a Thursday filing.&nbsp;



The fund adviser on both planned products is Empowered Funds, a subsidiary of white-label ETF platform Alpha Architect.



The document <a href="https://www.sec.gov/Archives/edgar/data/1592900/000182912623005634/easeries_485apos.htm">notes</a> that ARKZ would invest at least 25% of its total assets in cash-settled ether futures contracts, such as those traded on the Chicago Mercantile Exchange (CME). It may also invest in US Treasury securities, money market instruments and repurchase agreements.&nbsp;



ARKY would be similar, but would invest in both bitcoin futures and ether futures contracts, as well as its own planned ETFs that hold such contracts.&nbsp;&nbsp;



The funds mirror <a href="https://blockworks.co/news/eth-related-etf-proposals">similar filings launched by a range of issuers in recent weeks</a>. Sources told Blockworks earlier this month that the Securities and Exchange Commission is now ready to consider approving ether futures ETFs. This comes after reports in May suggested the regulator had requested issuers to pause its efforts in introducing such products to the market.



Read more: <a href="https://blockworks.co/news/sec-consider-ether-futures-etfs">SEC now ready to consider ETH futures ETFs, sources say — but what’s changed?</a>



Ark Invest and 21Shares <a href="https://blockworks.co/news/ark-files-for-bitcoin-etf">first partnered to launch a spot bitcoin ETF in 2021</a>. The SEC blocked its first two attempts and is currently reviewing the companies’ latest proposal.&nbsp;



The firms most recently re-filed for such a product in April — two months before <a href="https://blockworks.co/news/blackrock-clout-bitcoin-etf-approval">BlackRock revealed plans to try to launch a bitcoin ETF</a>, spurring other fund issuers to jump back into the race.&nbsp;



The SEC said on Aug. 11 that <a href="https://blockworks.co/news/sec-delays-bitcoin-etf-decision">it would “institute proceedings”</a> to determine whether it should approve or deny the ARK 21Shares Bitcoin ETF.



After the SEC delayed its decision on the spot bitcoin ETF proposal, Ark Invest and 21Shares shared plans to try to launch <a href="https://blockworks.co/news/ark-21shares-spot-bitcoin-etf">three types of bitcoin futures ETFs</a>, including one that would also invest in crypto- and blockchain-related equities.



Empowered Funds was also listed as the adviser of that planned product trio.



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