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The Kelly Ethereum Ether Strategy ETF will be an actively managed fund and will invest in cash-settled Ether Futures contracts.
On Monday, November 29, Kelly Strategic Management, an investment firm headed by Kevin Kelly, submitted Form N-1A to the US Securities and Exchange Commission (SEC) to list a US Ether Futures ETF.
Companies usually file for the N1 – A seeking to form open-ended mutual funds. Dubbed as the Kelly Ethereum Ether Strategy ETF, the fund will be actively managed, and invest in cash-settled Ether Futures contracts.
Cash-settled contracts mean that if the futures contract expires above the ETH value, the purchaser will pay the seller in cash. Also, the Kelly Ethereum Futures ETF will pick Ether futures contracts traded on registered commodity exchanges. Besides, the value of the futures contracts will follow the value of the underlying asset i.e. Ether in this case.
As of now, the Chicago Mercantile Exchange (CME) is the only platform offering to trade for Ethereum futures contracts. As of now, the CME facilitates positions for 8,000 Ether Futures contracts with each contract representing 50 ETH.
If the Kelly ETF hits those limits, it will have to invest in longer-dated Ether contracts. Besides, it can also invest in additional cash of fixed-income investments like corporate debt securities and government bonds.
Kelly Intelligence’s decision to float an Ethereun Futures ETF comes amid rising liquidity in the asset class. Besides, there’s a growing interest from institutional investors for Ethereu, Speaking to Blockworks, Kevin Kelly, the firm’s founder and CEO said:
“Kelly Intelligence’s interest in ether is predicated on the fact that we are at the start of the fourth industrial revolution – what we call the intelligence revolution — where the Ethereum network will be an integral part of our lives going forward”.
Will Kelly Get the SEC’s Nod for Its ETF?
The demand for Ethereum Futures ETF is rising after the SEC successfully approved two Bitcoin Futures ETFs recently. SEC Chairman Gary Gensler has shown his willingness to approve these projects.
However, the timing of Kelly’s filing is a bit surprising. Back in August 2021, two big ETF players VanEck and ProShares withdrew their applications for their futures-based Ether ETFs. However, Kelly Intelligence has declined to comment for now regarding its specific communications with the SEC.
Just had quick chat with @JSeyff and our early, rough odds of approval of this ETF is about 20% unless this @twobitidiot rumor is correct, then we'd obv go way lower like 1% (altho we still see multiple ETFs holding $ETHE) https://t.co/Ba4yRMsGS6
— Eric Balchunas (@EricBalchunas) November 29, 2021
The filing will take into effect 75 days from now pending no SEC action. As per Bloomberg ETF analysts Eric Balchunas and James Seyffart, the approval seems unlikely.