VanEck will not invest in Ethereum directly since the product tracks Ether futures that are traded on the Chicago Mercantile Exchange (CME).
A leading asset management firm with more than $80 billion in AUM, VanEck, is preparing to launch an Ethereum futures exchange-traded fund (ETF) amid heightened demand for the second-largest digital assets by institutional investors. According to the company, the new product will be called VanEck Ethereum Strategy ETF (EFUT), and will not invest in Ethereum directly. Instead, the EFUT will invest in standardized cash-settled Ethereum futures contracts that are traded on commodity exchanges that are regulated by the Commodity Futures Trading Commission (CFTC).
To begin with, VanEck will only invest in Ethereum futures that are traded on the Chicago Mercantile Exchange (CME). Additionally, the company’s EFUT will be listed on CBOE and be actively managed by Greg Krenzer, the head of active trading at VanEck. In addition to the EFUT, VanEck also has the Bitcoin Strategy ETF (XBTF), which also does not invest in Bitcoin directly.
— VanEck (@vaneck_us) September 28, 2023
VanEck and Digital Assets Investment Products
The launch of an Ethereum futures ETF by VanEck comes at a time when digital assets have been identified as a better alternative hedge against inflation. However, investors are not satisfied with the futures ETF products as they do not track the spot price of the underlying asset, thus not as profitable as the latter. The United States Securities and Exchange Commission (SEC) has, however, only permitted futures ETFs but continues to delay the approval of spot ETFs.
In the latest hearing with the House Financial Services Committee, SEC Chair Gary Gensler struggled to answer whether Ethereum and Bitcoin are a commodity. Moreover, an active legal case between the SEC and blockchain payment company Ripple directed Congress that crypto exchanges’ sales do not constitute an investment contract and, thus not regulated under the securities laws.
Meanwhile, several other fund managers have applied to offer Ethereum futures ETF to their clients and currently await regulatory approval. Some of the notable applicants include Bitwise Ethereum Strategy ETF, Roundhill Ether Strategy ETF, ProShares Short Ether Strategy ETF, ProShares Ether Strategy ETF, and Grayscale Ethereum Futures ETF. Moreover, there has been a notable spike in volume for Ethereum futures ETF in the past year.
The high demand for digital asset products by institutional investors has significantly helped improve the overall liquidity in the crypto market. However, the short-term headwinds and the market uncertainty have increased crypto liquidations and asset outflows. According to the recent weekly report from CoinShares, digital assets investment products recorded the sixth consecutive week of outflow with United States investors pulling about $14 million while Europe invested about $16 million in the past week.