Grayscale Investments, the world’s largest digital asset manager, has filed for a new exchange-traded fund (ETF) that would offer exposure to ether futures contracts. The proposed Grayscale Ether Futures Trust would track the performance of ether futures contracts traded on a regulated U.S. exchange, according to a filing with the Securities and Exchange Commission (SEC) on Friday.
The filing comes as Grayscale and other asset managers are eagerly awaiting the SEC’s approval of the first bitcoin futures ETF, which could open the door for more crypto-related products in the U.S. market. Grayscale already offers a popular trust that holds physical ether, the Grayscale Ethereum Trust (ETHE), which has over $10 billion in assets under management as of September 24.
The new ether futures ETF would differ from the existing trust in several ways. First, it would not hold any ether directly, but rather invest in cash-settled futures contracts that are based on the price of ether. Second, it would be subject to the rules and regulations of the Commodity Futures Trading Commission (CFTC), which oversees the futures market, rather than the SEC, which regulates securities. Third, it would trade on a national securities exchange, such as the NYSE or Nasdaq, rather than over the counter (OTC) markets.
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Grayscale said in the filing that the ether futures ETF would provide investors with several benefits, such as exposure to the price movements of ether without having to buy or store the cryptocurrency, access to a regulated and transparent market for ether futures contracts, and diversification of their portfolios with a new asset class.
However, the filing also acknowledged some risks and challenges, such as the volatility and unpredictability of the crypto market, the regulatory uncertainty and potential changes in the legal status of ether and its derivatives, and the operational and technical issues that could affect the trading and settlement of ether futures contracts.
Grayscale did not specify which U.S. exchange it plans to use for its ether futures ETF, but it is likely to be either CME Group or ErisX, which are currently the only two platforms that offer ether futures contracts in the U.S. CME Group launched its ether futures product in February 2021, while ErisX introduced its own version in May 2020. Both exchanges have seen growing demand and liquidity for their ether futures offerings, especially as institutional investors have shown more interest in the second-largest cryptocurrency by market capitalization.
Grayscale’s filing for an ether futures ETF is another sign of the increasing maturity and innovation of the crypto industry, as well as the growing appetite for crypto-related investment products among investors. However, it is still unclear when or if the SEC will approve any of these products, as the regulator has repeatedly expressed concerns about the lack of oversight and transparency in the crypto market, as well as the potential for fraud and manipulation.
The US Security and Exchange Commission – SEC has rejected several proposals for bitcoin ETFs in the past and has delayed its decision on several others until later this year or early next year. The SEC has not yet commented on any proposals for ether ETFs or other crypto-related products.