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Cryptocurrency Investors: ETF Closer to Reality Than You Think

May 24, 2017 3:00 pm Published by

The growing popularity of bitcoin is driving the overall interest in cryptocurrencies higher as investors from around the world flock to it in pursuit of hefty returns.

One of the offshoots that are seeing more investor interest is the Ethereum blockchain. Moves are being made to create an exchange traded fund (ETF). If this effort comes to fruition, it could vastly affect the global exposure of Ethereum, and increase investor confidence in the cryptocurrency space.

Ether ETF effort ramps up

EtherIndex LLC filed a preliminary prospectus with the U.S. Securities and Exchange Commission (SEC) in 2016 to create the first ether-based ETF. It’s called the EtherIndex Ether Trust. It would be listed on the NYSE Arca exchange.

For the ether ETF to be created, rule changes are required, and those changes must be approved by the SEC. So, in December, the NYSE Arca submitted a proposed rule change to the commission. The SEC is now accepting public comments about the launch of an Ether ETF.

Calming investor fears over cryptocurrencies

Anxieties over cryptocurrencies stem from a variety of perceptions. Skeptical investors are concerned about the markets that cryptocurrencies trade on. Issues persist around the fairness and stability of these markets. There are also concerns about these markets being highly susceptible to manipulation.

Proponents of the ether ETF have sought to calm these fears. One of those proponents is London-based reporter Andrew Quentson. In April, he made his case to the SEC about why the Ethereum ETF should be approved.

One of the points Quenston made was about the correlation between the number of Ethereum transactions and its price, which suggests that the market is acting objectively.

“In the one year that I have been following ethereum, its price has behaved in an expected manner. Suggesting that there is no manipulation or, if there is any, then it is very limited as otherwise someone would have noticed some discrepancy somewhere.” – Andrew Quenston

Investors weigh risks and rewards

The ether ETF filing and subsequent advancement in the approval process bode well for investors who want it to happen. This is especially the case for investors who see this kind of ETF as a way to further diversify their portfolios.

Cryptocurrency-backed ETFs would have been unheard of a decade ago. However, the growth of ether and the Ethereum network are making such ETFs more palatable.

Look no further than the recent price increases in ether that have resulted in its value pricing above $50. An ETF for Ethereum could further establish it, as well as other cryptocurrencies like bitcoin, as a worthy asset class.

An interesting find was a comment on the issue from a reader that weighed in on the subject after reading an article. The poster said:

“I would LOVE to have an ETF for cryptocurrencies because that would provide a way to open short positions in a regulated market you can actually trust. You would also be able to use margin in a traditional sense and possibly options.”

Observers say institutional investors are beginning to warm to cryptocurrencies being worthy investment considerations. They are using the growing acceptance of ether’s cousin, bitcoin, as a reason to learn more about investment opportunities.

Brian Kelly, the founder of Brian Kelly Capital, which recently launched a digital assets fund for outside investors, said:

“The biggest driver right now is you’re starting to see institutional investors take a keen interest in the entire sector.” – Brian Kelly

What’s next

No date has been specified as to when the SEC could make a determination on whether to approve the ether ETF.

In a veiled threat about what could come if the SEC doesn’t approve the ether ETF, Quenston stated some of the ramifications for the U.S. citizens.

“…they’ll just leave to Britain and other more welcoming jurisdictions while at the same time the best of a new generation concludes that American regulators are standing in the way of innovation for no good reason.”

For now, we’ll have to wait to see if the SEC heeds advice like Quenston’s.

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