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BlackRock applies for Ethereum spot ETF, is it time to enter the market?

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The launch of the BlackRock Ethereum ETF for spot trading will be delayed for several months. The SEC has up to 240 days to decide whether to approve the product, which could push the start date back to the fall of next year.

Original Title: "BlackRock Applies for Ethereum Spot ETF, Is it Time to Go All-In on ETH?"

Original Author: Eshita Nandini

Original Translation: Luffy, Foresight News

New York - November 30th, BlackRock CEO Larry Fink is seeking to further enter the cryptocurrency world through a spot ETF application.

Overview

BlackRock, the world's largest asset management company, has just submitted an application for an Ethereum spot ETF. As soon as the news came out, Ethereum immediately surged, rising nearly 10% from $1,880 to briefly above $2,100.

After news of BlackRock emerged, Ethereum surged.

Background

The surge in Ethereum prices is almost identical to the rebound of Bitcoin in June, when BlackRock also submitted an application for a listed Bitcoin ETF. ETFs are exchange-traded funds that provide investors with a convenient way to purchase asset exposure without directly purchasing the underlying assets. This nature is particularly attractive to cryptocurrency investors, many of whom are deterred by the technical and security challenges of purchasing actual assets.

Bitcoin surged more than 20% in June, as many industry insiders believed that asset management company BlackRock, with its influence and reputation, would not submit an application without expected success. It is worth noting that so far, the US Securities and Exchange Commission has not approved any spot ETF applications for cryptocurrency assets (although optimism is increasing, it has not yet been approved). Therefore, although Bitcoin has risen by 45% since that date, the development process has not been smooth. In fact, the asset almost gave back all its gains from the fall before rebounding again in October.

Outlook and Impact

First of all, it is important to remember that the BlackRock Ethereum ETF will not be listed for several months, and there is no guarantee that it will be listed at all. The SEC has up to 240 days to decide whether to approve the product, which could push the start date back to the fall of next year. Additionally, it is important to note the key differences in regulatory status between Bitcoin and Ethereum, which could cause further delays.

Despite the fact that almost all relevant parties, including the US Securities and Exchange Commission, agree that Bitcoin is not a security and is not within its jurisdiction, the future of Ethereum seems somewhat bleak. In fact, SEC Chairman Gary Gensler has been vague on this issue several times, including during a high-profile showdown with Patrick McHenry (R-NC), Chairman of the House Financial Services Committee, on whether Ethereum is a security. It is worth noting that Ethereum has not been listed as an unregistered security in any lawsuit brought by the SEC against exchanges such as Coinbase and Binance.

Although this distinction may not directly determine whether Ethereum can be included in ETFs, such debates may still slow down the process. If exchanges need to delist tokens, it may harm global liquidity and regulation, and make the market more fragile. The US Securities and Exchange Commission may also want to understand the trading situation of spot Bitcoin ETFs before approving products that track other assets. All of this means that, after one or two weeks of excitement, if followers suddenly appear, this excitement may continue.

Let's explore this in more detail.

Ethereum occupies a unique position in the world of cryptography because it crosses the boundary between safe haven/value storage tokens and the higher beta/more unstable entire crypto industry. This means that its value proposition has both safe haven and growth asset properties. This hybrid model has been proven in recent years, with Ethereum outperforming Bitcoin but lagging behind highly anticipated tokens such as Solana's SOL or Binance's BNB.

However, as people's interest in spot Bitcoin ETFs continues to grow, the script was reversed in 2023. Now, investors believe that Bitcoin is the best way to return to the cryptocurrency field after experiencing a brutal 2022. Ethereum is clearly lagging behind Bitcoin in terms of price, and there have been no significant changes in core fundamentals such as network usage and active participants in the past year.

All of this means that Ethereum's prospects were bleak in the months leading up to the ETF application. Despite a slight increase driven by Bitcoin, its monthly actual volatility was at its lowest level in nearly five years. Even in a bull market, Ethereum's implied volatility (expectations for future volatility) lags behind Bitcoin.

The volatility of Ethereum is decreasing

2023 Ethereum's implied volatility remains low

How to make decisions

Investors should be cautious about buying large amounts of Ethereum. This news does not change any fundamental properties or trajectory of Ethereum.

Despite this, Ethereum's prominent position in the world of cryptocurrency makes it an important component of any investment portfolio, but it must be done responsibly. Therefore, most Ethereum traders may want to immediately focus on the spot market and gradually build long positions. There are several options in the spot market, and centralized exchanges are the most common way to buy spot Ethereum. However, because one party controls these exchanges, they also come with risks. For example, assets cannot be verified unless you try to withdraw them. Lack of transparency is one of the reasons for the collapse of FTX. Some measures have been taken to mitigate this risk, such as reserve proof, but they are not perfect. The cost of exchanges may also be higher for retail traders. For example, Coinbase charges nearly 300 basis points for a simple transaction.

Despite their name, these seven exchange-traded funds based on ETH futures actually track the spot price of Bitcoin. They can be purchased directly from a broker account without the holder needing to hold any cryptocurrency. However, in addition to expense ratios, these may also come with hidden "roll costs." Roll costs are related to the additional costs of having to purchase higher-priced monthly futures contracts every 30 days, which ultimately get passed on to consumers. Fortunately, these costs can be minimized during periods of lower volatility.

Key data on the top Ethereum futures ETF in the United States, source: Forbes

If you are more adventurous, it may be worth considering a long-short strategy with a suitable set of targets, i.e. going long on Ethereum while shorting some smaller competitors such as SOL from Solana, ADA from Cardano, and ALGO from Algorand. However, please note that historically these assets have been closely correlated in both bull and bear markets. If you are willing to take on greater risk, you may consider using leverage with futures or options contracts, or buying ETF stocks aimed at doubling Ethereum returns (but please note that risks also increase exponentially). To hedge, people can also short Ethereum directly or buy ETFs such as ProShares' Short Ethereum Strategy (SETH: NASDAQ).

Finally, if anyone is interested in the possibility of discounted Ethereum, they may consider the Grayscale Ethereum Trust Fund (ETHE: OTCQX). They are currently trading at an 18% discount to net asset value. The issue is that the Ethereum behind them is currently non-redeemable. However, if Grayscale is able to convert ETHE to an ETF (which they applied for in October), there is a possibility of a slight premium in addition to the spot price increase.