Spot ether ETFs debuted in the U.S. on Tuesday in another transformational moment for the cryptocurrency industry — and, to some extent, for Canadian providers, who were the first in the world to offer the products.
The funds hit U.S. markets two months after the U.S. Securities and Exchange Commission (SEC) approved the rollout of ETFs tied to the price of ether, the second-largest cryptocurrency after bitcoin. Bitcoin ETFs were cleared for trading in the U.S. by the SEC in January.
On Tuesday, nine ether ETFs, including one conversion from a trust to an ETF, began trading across U.S. exchanges.
These were funds from 21Shares (Cboe: CETH), Bitwise (NYSE: ETHW), BlackRock (Nasdaq: ETHA), Fidelity (NYSE: FETH), Franklin Templeton (NYSE: EZET), Grayscale Investments (NYSE: ETH and ETHE), Invesco (Cboe: QETH) and VanEck (Cboe: ETHV).
“This is an exciting day not just for our team, but for investors more broadly,” said Kyle DaCruz, director of digital assets product with VanEck, in a release Tuesday.
“ETHV opens the door for investors who may have been curious about the role ether can play in their portfolio, but who might have been precluded from accessing it for a variety of reasons.”
Competition for Canada
The nine U.S.-listed ether ETFs create new competition for their Canadian counterparts, which had a three-year head start. ETF providers in Canada have offered ether ETFs since 2021, with assets under management amounting to $1.67 billion.
Andrew Clee, vice-president of product with Toronto-based Fidelity Investments Canada, welcomed the approval of the U.S.-listed products, which took years due to market manipulation concerns.
“It just brings more credibility to the asset class now that the SEC has greenlighted it,” Clee told Investment Executive.
But one possible challenge for Canadian providers is their relatively higher management fees. Ever since spot bitcoin ETFs launched in the U.S. in January, Canada-listed cryptoasset ETFs have suffered outflows every month, amounting to $832 million in the first half of the year, said Tiffany Zhang, vice-president of ETF research and strategy at National Bank Financial.
“One of the reasons could be related to the higher [management expense ratio (MER)] of Canadian products — several U.S. bitcoin ETFs even charge no management fee during [a] limited period of time to attract investor attention, while most of the Canadian bitcoin ETFs have MERs north of 1%,” she said in an email.
On Tuesday, Fidelity announced it will reduce its MER for the Fidelity Advantage Ether ETF (TSX: FETH) from 0.95% to an estimated 0.44%. This reduction will be passed along to the Fidelity Advantage Ether ETF Fund, which invests directly in the ETF.
“It was in part driven by the fact that the U.S. is bringing out ETFs, but it’s also [due to] the fact that as our business continues to scale, we are able to reduce the fees,” Clee said, noting the firm reduced its bitcoin ETF management fees in January as well.
Asked if it would follow suit, Purpose Investments, which launched its $473-million Purpose Ether ETF (TSX: ETHH) in April 2021, said no changes would be made to its 1% management fee yet.
“We regularly review our products’ features to make sure we are always offering best-in-class investment vehicles for our clients,” Vlad Tasevski, head of asset management, institutions and investors with Purpose, said in an email.
Investor demand, access
Regulatory approvals of crypto ETFs have previously led to an increase in the value of their underlying cryptocurrencies.
But ether ETFs may garner less investor demand than bitcoin ETFs.
“After significant inflows into the U.S. listed spot bitcoin ETFs in the first few months of 2024, the pace of inflows is slowing down,” Zhang said.
“The launch of spot [ether] ETFs could be another demand catalyst for the category. However, the inflows and adoption after these products go live should be smaller than the spot bitcoin ETFs.”
Providers hope crypto ETFs improve access to cryptocurrencies and allow investors to manage their portfolios all in one place, rather than in a separate wallet or exchange.
“Cryptocurrencies … have traditionally been hard to access in terms of having to sign up for an exchange or create your own wallet or storage. They also were fairly expensive in terms of transaction costs or custody costs prior to the launch of ETFs both in Canada and U.S.,” Clee said.
“And the other thing I think that’s really important [is] it allows you to view that position in a holistic portfolio.”
As well, the more competition in any product category, the merrier for investors, Zhang said.
“Competition is part of the ETF ecosystem, and a big contributor to its growth,” she added.
“Investors are the beneficiaries of competition because it usually leads to lower management fees, more transparency and well-constructed and differentiated products for investors to choose from.”