Yesterday, ARK Invest submitted an official request to the SEC to issue a spot Ethereum ETF.
If it is approved, it would be the first ETF ever to be collateralized directly in ETH and approved by the U.S. agency that oversees equity markets.
ETFs on Ethereum: Ark Invest gives it a try
In fact, ETFs on Ethereum already exist.
However if, for example, in Europe and Canada there are also already some that are collateralized directly in ETH, in the U.S., on the other hand, only ETFs based on Ethereum price futures contracts have been approved.
The argument is the same as for Bitcoin: the SEC has agreed to approve ETFs based on futures contracts, which are themselves CFTC-approved derivatives, but has not yet agreed to approve ETFs based directly on cryptocurrencies.
The fact is that the markets are now firmly convinced that, after the ruling against the SEC in the Grayscale case, the agency no longer has the ability to refuse to approve similar applications.
It should not be forgotten that one of the applicants is the giant BlackRock, which has an approval rate of more than 99 percent for its requests to issue ETFs.
So given that it seems possible that within a few months at most the SEC will approve the first spot Bitcoin ETF for the U.S. market as well, ARK Invest has decided that now might be a good time to get a spot ETH ETF approved as well.
ETFs that replicate cryptocurrency price movements have a couple of advantages, although they also have disadvantages.
The first advantage is that they do not require the investor to custody the cryptocurrencies, since custody is the responsibility of the fund manager.
Note that futures contract-based ETFs also do not require the custody of cryptocurrencies by the fund manager, who instead must only “custody” futures contracts.
But ETFs collateralized directly in cryptocurrencies track their market value better, and in theory could even return the underlying to their owners.
But the main advantage is another: they are fully regulated instruments that trade on traditional exchanges.
That is, in other words, they are almost identical financial products to those already in use, except for the underlying, which makes them usable by anyone trading on traditional exchanges, even institutional clients.
In contrast, this reasoning does not apply to crypto instruments, which are therefore inaccessible to some potential institutional investors who are forced by law to use only fully regulated financial products.
In addition, having a presence on traditional exchanges means that crypto ETFs will also be available for use by those who have never entered and do not want to enter crypto markets.
Of course, there are drawbacks as well, first and foremost the inability to self-custody and thus having to necessarily rely on a third party that in theory could also prove unreliable.
They also force their users to use the traditional financial system, and they cannot be traded P2P.
ARK Investment Management is a well-known U.S. investment management company, and it manages several actively managed ETFs.
It was founded in 2014 by Cathie Wood, who is also its CEO and CFO.
The company is famous because its Innovation ETF in 2020 became the largest actively managed ETF in the world, with $17 billion in assets under management and a 170 percent return. The following year ARK Invest became one of the top 10 ETF issuers in the world.
It is therefore a veritable behemoth in this field, so it is no coincidence that it is the first to have a real chance of having a spot ETH ETF approved by the SEC for the U.S. market.
ARK Invest’s Ethereum ETF
The spot ETH ETF that ARK Invest wants to issue will be called Ark 21Shares Ethereum ETF, and it will be issued in partnership with 21Shares, a leading crypto ETF issuer.
21Shares is a Swiss company, and operates mainly in Europe. It has already issued dozens of similar products, including ETFs and ETPs, including three ETPs on Ethereum.
The ETHs will be held by Coinbase Custody Trust Company.