Ether Future ETFs Explained: How They Work and What Exchanges Need To Know

Ether exchange-traded funds (ETFs) have recently joined Bitcoin Futures ETFs on Wall Street, bringing more life to U.S. exchanges. 

On their first day on the exchanges, they registered more than $1.019 billion in trading volume, which is 23% of BTC ETF’s cumulative volume during its debut. While lower than BTC’s volume, the high number shows a continuing interest in crypto in regulated markets. 

Ether Futures ETFs are a top option for investors who are interested in speculating on ETH‘s price movements but wary of unregulated crypto, hence their popularity. 

Crypto exchanges and financial institutions that embrace the Ether futures market have the opportunity to increase their revenue through trading and management fees. 

Here’s everything exchanges need to know about Ether Futures ETFs. 

What Are Ether Futures ETFs?

Ether Futures ETFs are investment funds that allow investors who are more comfortable with U.S. exchanges or lack crypto wallets to hedge or speculate on Ether’s price fluctuations. 

They’re popular because, unlike Spot Ether ETFs, they expose investors to Ether’s price movements without requiring them to directly hold the cryptocurrency.

So exchanges and financial institutions looking to attract more traders and investors need to understand the workings of Ether Future ETFs and support them. They can help increase trading volume, liquidity, and, as mentioned earlier, revenue. 

Some live ETH ETFs include:

• VanEck Ethereum Strategy ETF (EFUT)
• Invesco Galaxy Ethereum ETF (QETH)
• Fidelity Advantage Ether ETF (FETH)
• 21Shares Core Ethereum ETF (ETHC)
• Franklin Ethereum ETF (EZET)
• CI Galaxy Ethereum ETF (ETHX.B)
• ProShares Ether Strategy ETF (EETH)
• Bitwise Ethereum Strategy ETF (AETH)

 

How Ether Futures ETFs Work

Ethereum Futures ETFs allow investors to gain exposure to ETH price movements without actually holding or managing the cryptocurrency. Here’s an in-depth look at their workings.

1. Underlying Assets

As with traders of typical futures or perpetual futures, these funds deal with contracts instead of the actual cryptocurrency. They invest in Ether Futures contracts, which are agreements to buy or sell Ether at a predetermined price on a specific date. This means that investors don’t need to store or manage the cryptocurrency itself. 

2. Exposure to Ether Prices

Just because investors don’t hold the actual cryptocurrency doesn’t mean they can’t profit from it. Ether Futures ETFs expose them to actual Ether price movements, meaning they can profit from their positions. 

If the price of Ether increases, the value of the futures contract rises, allowing investors who take the long position to make a profit. If it falls, the futures contract’s value drops, benefiting those who take the short position. 

3. Regulation and Custody

Ether Futures ETFs are regulated by financial authorities and must adhere to specific rules and guidelines. This is one of the reasons why they’re popular among risk-averse investors. Regulation adds an extra layer of security, which can help build trust with potential traders. 

The ETF manager is responsible for the management of futures contracts. This is a great selling point for investors who don’t want to manage their own digital wallets or handle the complexities of trading actual Ether. 

4. Liquidity and Trading

As with other ETFs, Ether Futures ETFs run on stock exchanges. Investors can buy and sell the shares of the ETF at market prices throughout the trading day, as they would typical stocks, providing flexibility and liquidity. 

5. Costs and Fees

Investors of Ether Futures ETFs incur the expense ratio, a cost charged by the fund for management, legal, custodian, and auditing services, among others. This cost is variable and differs between different ETFs. 

Pros of Investing in Ether Futures ETFs

Many investors are flocking toward Ether Futures ETFs, making them valuable investments for crypto exchanges and financial institutions. Here’s why these investment products are so popular.

Regulatory Compliance

As mentioned earlier, Ether Future ETFs are subject to regulatory oversight by authorities like the U.S. Securities and Exchange Commission (SEC). 

This limits investors’ exposure to risks like market manipulation and fraud, which can instill confidence in those looking for more security than the standard crypto market provides. 

Diversification

There’s always a risk associated with investments, regardless of whether they occur in a futures exchange, a centralized exchange, or a decentralized exchange, because you can’t accurately predict market movements. This makes diversification essential for investors. 

Ether Futures ETFs represent a different asset class from typical securities and cryptocurrencies and, as such, can limit the impact of market movements on investors’ portfolios. They also provide access to unique returns, which can result in higher portfolio profits. 

Accessibility

The world of DeFI, crypto exchanges, blockchains, and digital wallets can be pretty intimidating for new investors. Unfortunately, this prevents some from entering the crypto landscape. 

Ether Futures ETFs simplify the investment process by eliminating the need for investors to buy, store, or manage ETH directly. Instead, they can purchase shares on conventional stock exchanges using their normal brokerage accounts. 

Lower Operational Risks

Cryptocurrencies are volatile. To add to this, they face threats like theft and hacking. While Ether Futures ETFs expose you to the crypto market‘s price swings, they can result in lower operational risks compared to direct cryptocurrency investments. Because investors don’t hold the actual Ether, it eliminates the risk of losses resulting from theft or hacking. 

Increased Investor Confidence

The regulated and easy-access nature of Ether Futures ETFs can boost investor confidence in crypto investments. Increased trust means a greater willingness to gain exposure to Ether. This provides an opportunity for exchanges and financial institutions to increase revenue. 

Surge in ETH Price

As with any market, the crypto market is controlled by supply and demand — an increase in demand results in higher prices. 

The introduction of Ether Futures ETFs has resulted in greater market interest in Ether and, as such, increased its demand. Considering how the market behaves when there’s high demand, there might be a surge in the price of ETH in the future. 

Positive Sentiment to Alts

Ether Futures ETFs may have a ripple effect on the entire crypto ecosystem. Their approval by regulatory bodies like the SEC lends credibility to the crypto market. This may result in positive sentiment toward alternative cryptocurrencies. 

Further, these ETFs have introduced many traditional investors to Ethereum, which is a great starting point for those who are unfamiliar with crypto. Registering success with these investments may enhance the attractiveness of other cryptocurrencies, increasing exchanges’ earning potential. 

Raise the CMC, Float All Boats

The introduction of Ether Futures ETFs has raised the overall cryptocurrency market capitalization by increasing the number of assets being traded. 

Increased market cap often leads to higher trading volumes, which can enhance the crypto market‘s liquidity. This can allow investors to buy and sell assets across exchanges without causing adverse price fluctuations. 

Cons of Investing in Ether Futures ETFs

As with any other asset, there are cons of investing in Ether Futures ETFs. These include:

Liquidity Concerns

There’s no guarantee of liquidity with Ether Futures ETFs — ETFs with low assets under management or low trading volumes and depth are unlikely to have enough liquidity. Unfortunately, this can cause delays in trade executions and impact investor confidence. 

Price Volatility

Ether Futures ETFs‘ underlying asset, Ether, is subject to price volatility. This makes the ETFs inherently volatile, which can deter risk-averse investors and investment companies from entering the crypto market. 

Higher Expense Ratios

Investors in Ether Futures ETFs often face higher expense ratios compared to other investment vehicles. Ether futures trading usually requires specialized brokerage services, which can be more expensive than those associated with traditional asset classes. 

Further, maintaining futures accounts requires robust custodial services and compliance with complex regulatory requirements, whose costs financial institutions pass on to investors. This can limit the attractiveness of Ether Futures ETFs. 

Elevate Your Crypto Exchange Platform With AlphaPoint

While there are some concerns over Ether Futures ETFs, it’s undeniable that their pros outweigh their cons longterm. They provide greater accessibility and lower risks, making them attractive to individual and institutional investors. 

Supporting them could increase your trading volumes and improve overall market liquidity, allowing investors to enter and leave positions quickly. 

AlphaPoint can bring you a step closer to Ether Futures ETFs by providing a seamless way to create and enhance your crypto exchange. Our white-label software allows for seamless deployment of smart contracts and large-size orders, making it easy for you to work with financial institutions looking to enter the crypto market. 

Ready to expand your crypto exchange offerings? Schedule a demo with AlphaPoint today.