Ben Strack

ProShares launched three ether futures ETFs earlier this month. Now, the firm is preparing to offer something a bit different.&nbsp;



The fund group’s Short Ether Strategy ETF (SETH) appears set to start trading in the coming days, about two weeks after the first ether futures ETFs arrived on the market.



To be listed on the NYSE Arca exchange, SETH seeks daily investment results that correspond to the inverse of the daily performance of the S&amp;P CME Ether Futures Index, according to a Friday <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/1174610/000168386323007155/f36559d1.htm#xx_560c15e8-e634-4d86-9ddd-2577e8d99eb8_2">filing</a>.&nbsp;



The fund does not directly short ether (<a href="https://blockworks.co/price/eth">ETH</a>). Instead, it aims to benefit from decreases in the asset’s price, the prospectus notes.



The price of ETH was about $1,540 at 4 pm ET on Friday — down roughly 6% from seven days ago.&nbsp;&nbsp;



<a href="https://blockworks.co/tag/proshares">ProShares</a> expects the registration statement for SETH “to go effective” on Oct. 15 and intends to launch the fund in early November, a source familiar with the filing told Blockworks.



The three existing ProShares ether futures funds — including two that invest in both ether and bitcoin futures contracts — <a href="https://blockworks.co/news/ether-futures-etfs-vaneck-proshares-bitwise-offerings">debuted on Oct. 2</a> alongside similar products by VanEck and Bitwise.



Read more: <a href="https://blockworks.co/news/ether-futures-etfs-opening-week-underwhelming">Underwhelming: week-one demand stays soft for ETH futures ETFs</a>&nbsp;



<a href="https://blockworks.co/news/sec-consider-ether-futures-etfs">The US Securities and Exchange Commission greenlit ether futures ETFs</a> two years after the first bitcoin futures ETF — the ProShares Bitcoin Strategy ETF (BITO) — came to market in October 2021.&nbsp;



ProShares followed up its bitcoin futures ETF launch with that of its Short Bitcoin Strategy ETF (BITI) in June 2022. BITO and BITI have about $850 million and $75 million in assets, respectively.



Updated Oct. 13, 2023 at 5:21 pm ET: Modified for additional context. 



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ProShares preps short ether futures ETF for trading

A clutch of ether futures ETFs have traded on the market for nearly a full week. Yet none have seen inflows anywhere near what their bitcoin futures predecessor reeled in.&nbsp;



The six ether futures ETFs launched by ProShares, VanEck and Bitwise on Monday held less than $20 million in combined assets after four days of trading.&nbsp;



The funds’ lack of growth is stark when compared to demand for the first bitcoin futures ETF. The ProShares Bitcoin Strategy ETF (BITO) grew to $1 billion in assets in its first few days on the market in October 2021.&nbsp;&nbsp;&nbsp;



The <a href="https://blockworks.co/tag/vaneck">VanEck</a> Ethereum Strategy ETF (EFUT) appears to be leading the asset race with $8 million. The ProShares Ether Strategy ETF (EETH) had roughly $6 million, while Bitwise’s pure ethers futures fund — its Bitwise Ethereum Strategy ETF (AETH) had not yet reached $1 million in assets.&nbsp;



Fund group <a href="https://blockworks.co/tag/valkyrie">Valkyrie</a> changed the name and investment strategy of its bitcoin futures fund on Tuesday. Now dubbed the Valkyrie Bitcoin and Ether Strategy ETF (BTF), that fund has seen zero net inflows this week, according to ETF.com.&nbsp;&nbsp;



The macroeconomic environment — including a federal funds rate that is currently at 5.33% — has contributed to an overall lower appetite in risk assets. Ether’s (<a href="https://blockworks.co/price/eth">ETH</a>) price was at about $1,630 at 10:30 am ET on Friday — down roughly 2% from seven days ago.&nbsp;&nbsp;



“With the [Treasury] bill yield soaring above the ETH staking yield amidst lackluster on-chain activity, EFUT’s number one position among ETH futures ETFs has been achieved at a relatively low AUM level so far,” said Matthew Sigel, VanEck’s head of digital assets research.&nbsp;&nbsp;



Industry watchers had kept an eye on Monday volumes in the six new ether futures ETFs, which totaled roughly $2 million in aggregate. BITO saw $1 billion in volume on its first day.



Simeon Hyman, global investment strategist at ProShares, told Blockworks it was unfair to compare EETH to BITO’s “historic” debut.&nbsp;



Others noted that BITO launched during a bull market and offers exposure to an asset with a market capitalization more than double that of ETH.



Read more: <a href="https://blockworks.co/news/ether-futures-etfs-trading-volume-vaneck-proshares-bitwise">The race begins: How ETH futures ETFs fared on day 1</a>



Bloomberg Intelligence analysts Mike McGlone and James Seyffart said in a Sept. 29 research note that while ETH futures ETFs are likely to be a popular tool for traders, they may be “largely ignored” by financial advisers.&nbsp;&nbsp;



Because the ETFs track front-month ether futures, they are likely to offer “high sensitivity” to the asset over the short, and perhaps medium term, the analysts argued. Their ability to track spot prices is expected to break down over time due to the costs of keeping front-month exposure.&nbsp;



“Advisers, familiar with roll costs due to experience with commodity funds, will probably opt to get Ethereum exposure directly, wait for spot ETFs or choose thematic equity-based crypto and blockchain ETFs,” McGlone and Seyffart wrote.



Fund issuers that weighed launching ether futures ETFs likely also had marketing in mind, as some fund groups <a href="https://blockworks.co/news/ark-invest-etf-battle">look to ultimately build extensive crypto ETF suites</a>.&nbsp;



VanEck’s X account has shared videos around the launch of EFUT in a bid to educate investors about the fund’s underlying asset.&nbsp;&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">NOW TRADING: The VanEck Ethereum Strategy ETF, <a href="https://twitter.com/search?q=%24EFUT&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$EFUT</a>. The transformation happens when enough of us are ready. <a href="https://twitter.com/hashtag/EnterTheEther?src=hash&amp;ref_src=twsrc%5Etfw">#EnterTheEther</a>. <a href="https://t.co/cb2KMG3wfW">pic.twitter.com/cb2KMG3wfW</a>&mdash; VanEck (@vaneck_us) <a href="https://twitter.com/vaneck_us/status/1708836614355476579?ref_src=twsrc%5Etfw">October 2, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Nate Geraci, president of The ETF Store, pointed to a more recent VanEck post that urged followers to check out the company’s other offerings. 



“This is why you launch ether futures ETF even [though] you know spot ETFs will likely be approved in not-too-distant future,” Geraci said in a Thursday X <a href="https://twitter.com/NateGeraci/status/1709743656263966935">post</a>. “Marketing expense. Plus demonstrate firm is forward-thinking around crypto.”



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Underwhelming: week-one demand stays soft for ETH futures ETFs 

The introduction of ether futures ETFs might reduce market volatility, but could also dampen ether&#8217;s performance potential. Bloomberg Intelligence analysts suggest that such a trend typically emerges as an asset class matures.



Spot bitcoin ETFs could do the same for bitcoin if the US Securities and Exchange Commission approves such products — just as the futures contracts of crypto’s two largest assets have done in recent years.&nbsp;&nbsp;



“It&#8217;s not unusual for high volatility and performance to subside in a nascent asset class as it migrates into the mainstream,” Bloomberg Intelligence’s Mike McGlone and James Seyffart said in a Wednesday research note. “Bitcoin and Ethereum US futures and [ETF] launches may continue the trend of squashing volatility and marking price peaks, particularly in an unfavorable liquidity environment.”



Fund groups VanEck, ProShares and Bitwise <a href="https://blockworks.co/news/ether-futures-etfs-vaneck-proshares-bitwise-offerings">launched a combined six funds that invest in ether futures contracts</a> on Monday. Competing firm Valkyrie <a href="https://blockworks.co/news/valkyrie-etf-ether-futures-unwind">added ether futures exposure</a> to its Bitcoin Strategy ETF on Tuesday.&nbsp;



Since ether futures started trading in 2021, the asset’s 260-day volatility has fallen from about 80% to just below 40%.



The first closing price of ether futures listed on the Chicago Mercantile Exchange (CME) that year was $1,752, the analysts wrote. The fact that price is about equal to its high in the first week of October “may have bearish implications for the crypto,” the Bloomberg Intelligence analysts said.



Ether’s (<a href="https://blockworks.co/price/eth">ETH</a>) price was at about $1,645 at 5 pm ET on Wednesday.&nbsp;



“The No. 2 crypto was on an upswing in 2021 and liquidity was positive,” McGlone and Seyffart noted. “Both have reversed.”



Ether futures ETFs could offer a short-term price boost, but allow greater access, “squashing volatility and performance potential,” they said.



“Sustaining above the 100-week mean at about $2,000 would be an initial sign of strength,” the Bloomberg Intelligence analysts added.&nbsp;



<h2 class="wp-block-heading">Bitcoin ETF impact on volatility</h2>



The <a href="https://blockworks.co/tag/sec">SEC</a> is currently reviewing planned spot bitcoin ETFs — a type of fund some believe could see approval by early next year <a href="https://blockworks.co/news/grayscale-sec-spot-bitcoin-etf#">after Grayscale Investments’ court win</a> against the regulator in August.&nbsp;



Firms, including <a href="https://blockworks.co/news/21shares-ark-filing-for-spot-ether-etf">Ark Invest</a>, VanEck and <a href="https://blockworks.co/news/invesco-spot-ether-etf-galaxy-digital-bitcoin">Invesco</a> have also submitted spot ether ETF proposals.&nbsp;



Bitcoin’s (<a href="https://blockworks.co/price/btc">BTC</a>) annual volatility has dropped from about eight times the Nasdaq 100 stock index in 2017, when bitcoin futures started trading, to about two times the index today.&nbsp;



“The long-awaited advent of spot bitcoin ETFs in the US come at a time when liquidity remains negative and risk assets face drawdown potential amid the risk of a global recession,” McGlone and Seyffart wrote. “When plugging bitcoin into most value-at-risk models, the facts of flat performance for about the past five years and more risk may weigh on reallocation decisions from equities, made easier via spot ETFs.”



The average daily price change for bitcoin has dropped from 2% two years ago to less than 1% now, according to Ruslan Lienkha, chief of markets at YouHodler.



“The current interest of financial institutions in crypto is just another iteration in the process,” Lienkha told Blockworks. “But the process started several years ago when the first crypto funds and firms appeared in the market, joining individual crypto enthusiasts.”&nbsp;



Institutional investors, particularly those in the wealth management segment, still face barriers to accessing bitcoin, said Alex Thorn, head of research at Galaxy Digital.&nbsp;&nbsp;



“Increased market access for institutions, facilitated by vehicles like ETFs, will enhance liquidity in bitcoin spot markets and, consequently, play a role in diminishing overall volatility over time,” he said.



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Crypto ETF launches could hurt assets’ price potential, analysts say

Sebastian Sinclair

Bitcoin snapped off a run over the weekend, driving its price to a one-month high as speculation about crypto-tied ETFs on Monday remained relatively muted.



The asset rose 3.8% to just under $28,000 in Monday’s trade before succumbing to a slight sell-off just below its 200-day moving average. Bitcoin is trading at $27,580, Blockworks data shows.



Futures data <a href="https://velodata.app/futures">shows</a> more than $12 million short liquidation losses took place across OKX and Binance following a rise in the underlying asset’s jump to $28,000. Implied volatility for bitcoin options contracts is hovering at 36.4% while the historical volatility value is roughly 27%, Bitfinex <a href="https://blog.bitfinex.com/wp-content/uploads/2023/10/Bitfinex-Alpha-74.pdf">noted</a> in its report on Monday.&nbsp;



“Historically, a positive September ushers in a bullish October and the volatility as well as the futures market metrics all point towards increased volatility and some upside, at least on the higher time frames,” Bitfinex analysts said.



The month’s positive end preceded a number of ether (<a href="https://blockworks.co/price/eth">ETH</a>) futures ETFs that went live Monday. Yet despite initial optimism, those vehicles <a href="http://blockworks.co/news/ether-futures-etfs-trading-volume-vaneck-proshares-bitwise">performed modestly out of the gate</a>.



On-chain metrics show miners continue to accrue bitcoin. Glassnode <a href="http://x.com/glassnodealerts/status/1709044484355318254?s=20">data</a> indicates that the seven-day moving average for the flow of bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) from miners to exchanges has hit a one-month low of 4.251 BTC — a level not seen since the beginning of September.



The amount of <a href="http://x.com/glassnodealerts/status/1709014271307215200?s=20">supply</a> last active in the last three to five years has also reached a one-month high of more than 2.1 million BTC.



Conversely, ETH’s seven-day moving <a href="http://x.com/glassnodealerts/status/1709044479095611596?s=20">average</a> for the flow of ETH moving to exchanges cemented its own one-month high above $14.2 million. 



While the debut of ether futures ETFs in the US was fairly uneventful on day one, one analyst predicted the launches could spur further adoption of the digital asset.&nbsp;



“VanEck’s decision to launch a futures ETF while promising to donate 10% of the ETF’s profits to Ethereum developers embodies the firm’s trust in the asset’s rise into mainstream consciousness,” Jesper Johansen, CEO at Northstake said.



“The move also funds and accelerates the protocol’s development, ultimately making ETH more accessible for institutions and individuals looking to participate in the ecosystem,” he said.



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Bitcoin’s climb to $28K nudges ETF speculators amid spot exposure hunt

The first ETFs to hold ether futures contracts launched Monday, with fund groups like VanEck, ProShares, and Bitwise Asset Management competing for assets.



Volatility Shares, the firm that kickstarted the latest wave of filings for such products in July, no longer intends to launch an ether futures product, a person familiar with the firm’s plans told Blockworks.&nbsp;



<h2 class="wp-block-heading">The initial competitors</h2>



VanEck on Monday launched its Ethereum Strategy ETF (EFUT), which invests in standardized, cash-settled ETH futures contracts traded on exchanges registered with the Commodity Futures Trading Commission. The fund joins a bitcoin futures ETF the firm launched in 2021.&nbsp;



“While investors still do not have the means to gain exposure to digital assets here in the US via a spot ETF product, we’re very pleased to be launching EFUT as a means to access the robust futures market that has developed around ETH itself,” Kyle DaCruz, VanEck’s director of digital asset product, said in a statement.&nbsp;



Meanwhile, ProShares and Bitwise Asset Management launched multiple ether-related ETFs Monday.&nbsp;



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>



The ProShares Ether Strategy ETF (EETH) began trading on the New York Stock Exchange. The firm also brought to market the ProShares Bitcoin &amp; Ether Equal Weight Strategy ETF (BETE) and its Bitcoin &amp; Ether Market Cap Weight Strategy ETF (BETH).



The three funds join ProShares’ Bitcoin Strategy ETF (BITO) — the first bitcoin futures ETF to market in the US, which now has about $860 million assets under management.&nbsp;



Like ProShares, Bitwise is offering investors choice in how they want to access exposure to ether futures. The company launched its Ethereum Strategy ETF (AETH) and Bitcoin and Ether Equal Weight Strategy ETF (BTOP) on Monday. 



Competing crypto ETF issuer Valkyrie <a href="https://blockworks.co/news/ether-futures-etfs-launch-soon">began adding ether futures contracts</a> to its bitcoin futures ETF on Thursday as part of an investment strategy change set to go into effect on Oct. 3, a spokesperson told Blockworks Thursday. But the firm said in a Friday filing that it would <a href="https://blockworks.co/news/valkyrie-etf-ether-futures-unwind">“unwind” its positions in ether futures contracts</a> until the investment strategy is officially amended.&nbsp;



Meanwhile, a source familiar with Volatility Shares’ plans said the company chose to ditch its ether futures ETF plan due to losing its potential “first-mover advantage.” Such an advantage is critical for smaller issuers going up against rivals with bigger marketing budgets, the person added.



Read more: <a href="https://blockworks.co/news/volatility-shares-eth-futures-etf">Volatility Shares not giving up on ETH futures ETF effort</a>



Volatility Shares was in position to potentially launch the first fund with pure exposure on Oct. 12. But ether futures ETFs were able to come to market ahead of schedule as the US Securities and Exchange Commission appeared to accelerate such launches to prepare for a potential government shutdown.&nbsp;



The regulator did not return a request for comment.&nbsp;&nbsp;



VolatilityShares is not the only firm to abandon its ether futures ETF plans.



Roundhill Investments requested to withdraw its application for such a fund in a Sept. 29 filing to the SEC.&nbsp;



Kelly ETFs founder Kevin Kelly told Blockworks in an email Monday the firm is not launching its proposed ether futures ETF.&nbsp;&nbsp;



<h2 class="wp-block-heading">Products look to stand out</h2>



Nate Geraci, president of The ETF Store, said in August he expects the demand for ether futures ETFs to be “fairly limited overall.”&nbsp;&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">I expect demand for ETH futures ETFs to be fairly limited overall… BTC futures ETFs have &lt; $1.5bil AUM &amp; much of that came in first few days post-launch. Combined BTC + ETH futures ETFs prob best path to succeed for now IMO. Ultimately, investors want real deal (spot ETFs). <a href="https://t.co/hNx61wmYbz">https://t.co/hNx61wmYbz</a>&mdash; Nate Geraci (@NateGeraci) <a href="https://twitter.com/NateGeraci/status/1687229563212824576?ref_src=twsrc%5Etfw">August 3, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Bloomberg Intelligence’s Eric Balchunas said in a Friday X <a href="https://twitter.com/EricBalchunas/status/1707872247791185998">post</a> he estimates all ether futures ETFs to have about $200 million in assets under management by the end of the first week of trading.&nbsp;



BITO quickly amassed $1 billion in assets when it launched ahead of competitors in October 2021. But with a more crowded field of ether futures ETF issuers launching at or around the same time, industry watchers have said marketing and fees will be key.



VanEck’s product carries an expense ratio of 66 basis points. The Bitwise funds charge 85 basis points, while the ProShares offerings cost 95 basis points.&nbsp;



As for marketing, VanEck had been teasing the upcoming launch of EFUT last week, posting a <a href="https://twitter.com/vaneck_us/status/1707419473337033075?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1707419473337033075%7Ctwgr%5E2944f8bab5605f486fa8429b85307f1b9a9ee0c9%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fblockworks.co%2Fnews%2Fether-futures-etfs-launch-soon">video</a> on its X page Thursday inviting investors to “enter the ether.”



“As we&#8217;ve been saying both with ETH futures, but especially with spot bitcoin, it will be a marketing war like we&#8217;ve never seen since they all do [the] same thing and launch on [the] same day,” Balchunas said in an X <a href="https://twitter.com/EricBalchunas/status/1707421312518386086">post</a> in response to the VanEck video. “Unprecedented.”



VanEck added in a Friday X <a href="https://twitter.com/vaneck_us/status/1707888396171977036">post</a> that it plans to donate 10% of its profits from EFUT to Protocol Guild — a collective of 152 Ethereum core protocol contributors.&nbsp;



“Marketing war has definitely begun,” Bloomberg Intelligence analyst James Seyffart said in response to the announcement on X.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Friday night fun. 10% of Vaneck’s profits on their Ethereum ETF <a href="https://twitter.com/search?q=%24EFUT&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$EFUT</a> are gonna go to <a href="https://twitter.com/ProtocolGuild?ref_src=twsrc%5Etfw">@ProtocolGuild</a> which is an org made up of ETH core developers. So basically going back into the ETH ecosystem in a way. Marketing war has definitely begun <a href="https://t.co/mCruFnOdap">https://t.co/mCruFnOdap</a>&mdash; James Seyffart (@JSeyff) <a href="https://twitter.com/JSeyff/status/1707889507775762524?ref_src=twsrc%5Etfw">September 29, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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ProShares highlighted in a Friday news release that it is the issuer of BITO, the largest crypto-linked ETF. It has also touted the greater optionality it is offering compared to VanEck and Bitwise with its three ether-related funds.



“We believe that BETE and BETH are groundbreaking in that they offer investors the opportunity to target the performance of the two leading cryptocurrencies in their brokerage accounts through one transaction with a single ticker,” CEO Michael Sapir said in a statement. “We are offering two weightings depending on an investor’s desired exposure.”



Bitwise CIO Matthew Hougan said the difference between his firm and the other initial issuers of ether futures ETFs is the level of crypto expertise.



“We&#8217;re excited to see big traditional equity assets managers come into the market; it&#8217;s a great validation of the space,” Hougan told Blockworks in an email. “For investors, the difference with Bitwise is that crypto is all that we do.”



Read more: <a href="https://blockworks.co/news/bitwise-matt-hougan-spot-bitcoin-etf-price-discovery">New Bitwise research seeks to fill gaps in rival bitcoin ETF proposals</a>



VanEck and ProShares have 67 and 137 ETFs trading in the US, respectively, according to ETF.com — funds across an array of asset classes.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;



“Every day at Bitwise, 64 investment professionals show up to work and all we do is study crypto,” Hougan added. “We have the builders, regulators, technologists, venture capitalists and entrepreneurs on speed dial.”



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Fight for assets begins as ETH futures ETFs debut

A day after Valkyrie Investments became the first to offer ether futures exposure in an ETF, the crypto-focused firm is getting rid of those holdings.



At least for now.&nbsp;



The Valkyrie Bitcoin Strategy ETF (BTF) will not purchase ether futures contracts “until the effectiveness of an amendment to the fund’s registration statement contemplat[es] the addition of ether futures contracts to the principal investment strategy of the fund,” Valkyrie said in a Friday filing. 



“Until such time, the fund will unwind any existing positions in ether futures contracts,” the <a href="https://www.sec.gov/Archives/edgar/data/1877493/000138713123011727/valkyrie-497_092923.htm">disclosure</a> adds.&nbsp;



A Valkyrie spokesperson did not immediately return a request for comment.&nbsp;



Valkyrie had filed with the US Securities and Exchange Commission in August <a href="https://blockworks.co/news/valkyrie-eth-futures-etf">to change the investment strategy of its bitcoin futures ETF</a> to one that also allows it to invest in ether futures.&nbsp;



A firm representative told Blockworks Thursday that <a href="https://blockworks.co/news/ether-futures-etfs-launch-soon">BTF began adding exposure to ether futures contracts</a>, noting that the new investment strategy was set to become formally effective on Oct. 3. The fund is set to be renamed the Valkyrie Bitcoin and Ether Strategy ETF that day.



Bloomberg Intelligence analyst James Seyffart said in an X <a href="https://twitter.com/JSeyff/status/1707754634033476073">post</a> Friday that Valkyrie’s latest filing could indicate that the SEC asked the firm to reverse its ETH futures positions until the official effective date as competitors also prepare ETFs with such exposures.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;



“The SEC does not want to be a kingmaker via their policies and will do whatever they can to prevent someone from launching on their own like BITO in 2021,” Seyffart added in a separate X post.&nbsp;



The <a href="https://blockworks.co/tag/sec">SEC</a> did not immediately return a request for comment.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">As we&#39;re watching things now: <a href="https://t.co/qQTvrOGX5R">https://t.co/qQTvrOGX5R</a>&mdash; James Seyffart (@JSeyff) <a href="https://twitter.com/JSeyff/status/1707763519708369266?ref_src=twsrc%5Etfw">September 29, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Seyffart is referring to the ProShares Bitcoin Strategy ETF (BITO) — the first bitcoin futures fund to launch in the US, which hit the market in October 2021. Though similar products by Valkyrie and VanEck launched in the following days, BITO gained the lion’s share of assets into these types of funds, <a href="https://blockworks.co/news/bito-on-track-to-be-first-fund-in-history-to-hit-1b-in-aum-in-two-days">quickly amassing $1 billion</a> in assets under management.&nbsp;



VanEck, ProShares and Bitwise have submitted updated prospectuses over the last 24 hours for their own ETFs that invest in ether futures contracts — with expense ratios ranging from 66 basis points to 95 basis points. Bloomberg Intelligence analysts said they expect these funds could go live as soon as Monday.&nbsp;



VanEck posted a <a href="https://twitter.com/vaneck_us/status/1707419473337033075?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1707419473337033075%7Ctwgr%5E2944f8bab5605f486fa8429b85307f1b9a9ee0c9%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fblockworks.co%2Fnews%2Fether-futures-etfs-launch-soon">video</a> on its X page Thursday — in tandem with a press release — teasing the “upcoming launch” of the VanEck Ethereum Strategy ETF. The company declined to comment further.&nbsp;



Volatility Shares, which kicked off the latest wave of ether futures ETF filings in July, said last month it planned to launch its Ether Strategy ETF (ETHU) on Oct. 12. Its website continues to show that date. A representative for the firm did not immediately comment.&nbsp;&nbsp;



Spokespeople for Bitwise and ProShares declined to comment.



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Valkyrie ETF to ‘unwind’ ETH futures position — at least for now

Katherine Ross

Grayscale is throwing its hat in the ring for an ether futures exchange-traded fund (ETF).



The ETF, which tracks ether futures, would be another way for Grayscale to get exposure to ether as it awaits a decision on its bitcoin ETF.



Since the ETF will only focus on ether futures, the filing clarifies that it will not “transact in ether and will not be required to retain an ether custodian.”



Other firms, including <a href="https://blockworks.co/news/ark-21shares-ethereum-etf">Ark Invest and 21Shares</a> along with Bitwise and ProShares, have also filed for ether futures ETFs.



Read more: <a href="https://blockworks.co/news/spot-bitcoin-ether-etf-sec">Why potential BTC and ETH ETF approvals would be game-changers</a>



<a href="https://blockworks.co/news/sec-consider-ether-futures-etfs">Blockworks previously reported</a> that sources confirmed that the US Securities and Exchange Commission is ready to consider the approval of ether futures ETFs. Previously, reports suggested that the SEC pushed for a pause in introducing these types of products.&nbsp;



An ether futures ETF approval could <a href="https://blockworks.co/news/crypto-fund-trading-spot-etf">come as soon as next month</a>.



The <a href="http://nyse.com/publicdocs/nyse/markets/nyse-arca/rule-filings/filings/2023/SR-NYSEArca-2023-63.pdf">filing</a> comes after Grayscale announced that it was abandoning the rights to Ethereum proof-of-work tokens. 



The decision, according to a press <a href="https://www.globenewswire.com/news-release/2023/09/18/2744770/0/en/Grayscale-Investments-Announces-Abandonment-of-Rights-to-Ethereum-Proof-of-Work-Tokens.html">release</a>, came after Grayscale and the relevant service providers determined that both the custodian of the products, as well as the service providers, do not “support the ETHPoW tokens, nor have trading venues with meaningful liquidity developed for the ETHPoW tokens.”



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



Grayscale <a href="https://blockworks.co/news/grayscale-sec-decision-bitcoin-etf">notched a partial victory</a> against the SEC last month after a panel of judges ruled that the SEC must re-examine Grayscale’s application for a spot bitcoin ETF.



The win comes after <a href="https://blockworks.co/news/grayscale-sues-sec-over-rejection-of-proposed-spot-bitcoin-etf">Grayscale filed a lawsuit</a> against the SEC over the application rejection back in 2022.&nbsp;



While the win does not mean that Grayscale was immediately able to convert its Bitcoin Trust (GBTC) to an ETF, it <a href="https://blockworks.co/news/grayscale-sec-spot-bitcoin-etf">raised hope</a> among those who are awaiting an SEC decision on spot bitcoin ETFs. 



Blackrock, Ark, Fidelity and <a href="https://blockworks.co/news/franklin-templeton-bitcoin-etf">Franklin Templeton</a> are among the companies looking to launch spot bitcoin ETFs. The SEC, however, <a href="https://blockworks.co/news/sec-delay-decision-bitcoin-etf-blackrock">delayed its decision</a> on the spot bitcoin ETF applicants until <a href="https://blockworks.co/news/sec-delay-bitcoin-etf-decision-wisdomtree-valkyrie">October</a>.



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Grayscale files for ether futures ETF

The proposed management fee of a planned ether futures ETF could signal a crypto fund fee war is brewing, according to market observers.



But how that could impact the cost of a <a href="https://blockworks.co/tag/bitcoin-etf">spot bitcoin ETF</a> — and whether investors even care — remains to be seen, particularly as the Securities and Exchange Commission has never permitted such a product to launch. 



Roundhill Investments revealed in an Aug. 4 <a href="https://www.sec.gov/Archives/edgar/data/1683471/000089418923005424/roundhilletherstrategypros.htm">filing</a> that its Ether Strategy ETF would charge a management fee of 19 basis points, or 0.19%.



The 0.19% fee is nearly one-sixth the fee that Volatility Shares plans to charge for its Ether Strategy ETF, a planned fund that kicked off a slew of similar filings. These proposed fees could change between now and potential approval of the product.&nbsp;&nbsp;



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>



The management fees represent a portion of the expense ratio, or the percentage of the fund’s assets that is used to cover various expenses of running the fund.&nbsp;



A Volatility Shares spokesperson declined to comment. Roundhill did not return a request for comment.&nbsp;&nbsp;



Bloomberg Intelligence analysts Eric Balchunas and James Seyffart highlighted the Roundhill fee in <a href="https://twitter.com/EricBalchunas/status/1692328790393749654">tweets</a> last week.



“Fee wars already starting and we [are] two months from launch,” Balchunas said. “ETF Terrordome in effect.”



<h2 class="wp-block-heading">How this could relate to bitcoin ETFs</h2>



The proposed spot bitcoin ETFs being reviewed by the <a href="https://blockworks.co/tag/sec">SEC</a> have not yet revealed their expense ratios.



Matt Hougan, chief investment officer of prospective spot bitcoin ETF issuer Bitwise, said during a webinar earlier this month that the expense ratios of futures-based ETFs could signal what spot bitcoin ETF issuers might charge.



The ProShares Bitcoin Strategy ETF (BITO) — the largest bitcoin futures ETF, and first to launch — has an expense ratio of 0.95%. So, too, does the Valkyrie Bitcoin Strategy ETF (BTF). VanEck’s bitcoin futures fund (XBTF) is cheaper, carrying an expense ratio of 0.66%.



Ric Edelman, founder of the Digital Assets Council of Financial Professionals (DACFP), said during the webinar with Hougan that he expects spot bitcoin ETFs to carry expense ratios between 0.5% and 1.0%.



But Nate Geraci, president of The ETF Store, said in an Aug. 18 <a href="https://twitter.com/NateGeraci/status/1692348716160622779">tweet</a> that issuers of spot bitcoin ETFs may look to beat Roundhill’s proposed 0.19% fee.



“Thought we could see [less than] 40 [basis points]; It might end up way lower than that,” Geraci added. “Will be brutal fee competition.”



Dave Nadig, financial futurist at VettaFi, said 0.19% would be cheap for an ETF focused on any kind of alternative asset class.&nbsp;



Issuers of a crypto futures product could charge more than those of spot-based products, Nadig argued, noting the roll costs associated with futures contracts.



“However, because a spot bitcoin [ETF] is going to be largely an access vehicle, I suspect volume is going to be vastly more important than expense ratio,” he told Blockworks. 



Expense ratio likely won’t matter at all if the SEC greenlights one spot bitcoin ETF to launch by itself, Nadig said — a scenario <a href="https://blockworks.co/news/grayscale-sec-advantage">opposed by Grayscale Investments</a> and <a href="https://blockworks.co/news/sec-stop-picking-winners">VanEck’s head of digital assets research</a>.&nbsp;



But if multiple launch at once, expense ratio, as well as fund volumes — likely driven by institutions — will be more critical for the ETFs’ success, he added.



“You can imagine a scenario where there’s a known start date and various players then go and quietly nudge their largest ETF [and] crypto-interested trading partners and clients,” Nadig said. “In that case, volume will matter, but [expense ratio] might.”



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As potential crypto ETF ‘fee war’ looms, what will spot bitcoin ETFs cost?

<div id="highlights-block_621e941905ff3" class="highlights">
 <ul>
 <li>Offerings will allow traders to hedge market-moving events with greater precision, according to CME Group’s global head of equity and foreign exchange products</li>
 <li>CME Group began offering micro bitcoin and micro ether futures contracts last year</li>
 </ul>
 
</div>



Derivatives exchange CME Group is set to roll out options on micro bitcoin and ether futures this month in a move to give more traders exposure to such instruments with nominal capital.



The options contracts, set to launch March 28, will be one-tenth the size of their underlying tokens. CME introduced bitcoin futures contracts, sized at five bitcoin, in 2020.



Futures require the buyer to purchase an asset at a certain date, while options give an investor the right, but not the obligation, to buy or sell an asset before the contract expires.



CME Group began offering bitcoin futures contracts in 2017 and <a href="https://cms.blockworks.co/cme-group-to-launch-cash-settled-micro-bitcoin-futures/" target="_blank" rel="noreferrer noopener">launched</a> cash-settled micro bitcoin futures contracts worth one-tenth of one bitcoin last year. The derivatives marketplace <a href="https://cms.blockworks.co/cme-group-plots-launch-of-micro-ether-futures/" target="_blank" rel="noreferrer noopener">moved in November</a> to add micro ether futures as liquidity in ether futures grew steadily with investors.&nbsp;



About 5.2 million micro bitcoin and micro ether futures contracts have changed hands in less than a year, according to Tim McCourt, CME Group’s global head of equity and foreign exchange products.



“Building on the strength and liquidity of the underlying contracts, our micro-sized options will enable traders of all sizes to efficiently hedge market-moving events with greater precision and flexibility or fine-tune their cryptocurrency market exposure,” McCourt told Blockworks in an email.



As traders favor short-dated options to manage risk, according to McCourt, the launch will feature Monday, Wednesday and Friday weekly expiries for micro crypto options.



Executives at Genesis Global Trading, Cumberland and Akuna Digital Assets said their firms will provide liquidity.



&#8220;We believe that options on these contracts will allow existing market participants greater flexibility when seeking cost-efficient exposure as well as opening the market to new participants who prefer the more granular sizing,&#8221; Akuna CEO John Harris said in a statement.



The launch comes after CME Group launched two new reference rates for bitcoin and ether Monday that provide a daily reference rate of the US dollar price of the two digital assets, published at 4 pm ET.



“We’re continually talking with and listening to clients and market participants about new ways to help them manage cryptocurrency risk,” McCourt said, declining to share specific future crypto products the company has in the works.



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