As the recent fever surrounding Bitcoin exchange-traded funds (ETFs) somewhat subdued, with the issuers and investors still eagerly awaiting the regulatory approval for this investment vehicle in the U.S., Ethereum futures ETFs have suddenly taken center stage.
At least five applications from different firms were filed within 24 hours on August 1, and another was one submitted last week.
An ETF tracking Ethereum futures would essentially invest in futures contracts of the industry’s second largest cryptocurrency that are traded on the CFTC-regulated Chicago Mercantile Exchange (CME) rather than directly holding the underlying asset.
How these efforts pan out and whether the SEC greenlights any of the current filings remains an open question, especially in the light of the regulator’s recent clampdown on the crypto industry and the barely disguised attempts to classify almost every cryptocurrency—except for Bitcoin—as a security.
Volatility Shares: Ether Strategy ETF
Filed: 07/27/2023SEC Response: 10/11/2023Listing Exchange: CBOE BZX Exchange
Volatility Shares, which manages $173.5 million across four exchange-traded funds, could become the first issuer of the ETF with the focus on Ether after outlining its plans in a July 28 filing with the SEC.
The company’s proposed Ether Strategy ETF (ETHU) complies with the provisions of the 1940 Act governing investment policies and capital structure and would invest up to 25% of its assets in cash-settled Ether futures contracts traded on the CFTC-regulated Chicago Mercantile Exchange (CME).
Additionally, the fund may invest in reverse purchase agreements and shares of other investment companies, but not directly in Ethereum, per the filing.
The fund intends to list and principally trade its shares on CBOE BZX Exchange.
The proposed ETHU application follows the introduction of the Volatility Shares 2x Bitcoin Strategy ETF (BITX)—the first leveraged Bitcoin futures ETF—launched by the Mt. Kisco, NY-based firm in June.
Bitwise: Ethereum Strategy ETF
Filed: 08/01/2023SEC Response: 10/16/2023Listing Exchange: NYSE Arca
After withdrawing its initial filing in May, Bitwise re-applied for its Ethereum Strategy ETF (ETHG) on August 1. According to the filing, ETHG intends to invest in cash-settled, front-month, i.e. with the shortest time to maturity, ETH futures contracts, without seeking direct exposure to the current spot price of Ethereum.
The fund is classified as “non-diversified” under the Investment Company Act of 1940, meaning it is able to invest a relatively high percentage of its assets in financial instruments with a single counterparty or a few counterparties.
The filing details that the fund will not invest in ETH futures contracts directly; instead, the investments will be channeled through a wholly-owned subsidiary operating under the laws of the Cayman Islands.
Furthermore, since the Bitwise Ethereum Strategy ETF intends to qualify for treatment as a regulated investment company, the size of the fund’s investment in that subsidiary will not exceed 25% of its total assets at each quarter end of the fiscal year.
Despite such a low allocation, the fund seeks to achieve its investment objective primarily through its investment in ETH Futures Contracts, whereas the remaining 75% of assets are expected to be invested in U.S. Treasuries and other U.S. government obligations, as well as money market funds, cash and cashlike equivalents such as high quality commercial paper.
Roundhill: Roundhill Ether Strategy ETF
Filed: 08/01/2023SEC Response: 10/16/2023Listing Exchange: Not specified
New York-based Roundhill Investments is a SEC-registered investment adviser focused on offering innovative financial products designed to offer exposure to investment themes that appeal to the next generation of investors.
The firm currently has a total of $662 of assets under management across eight ETF and is seeking to expand the offering with the launch of the Roundhill Ether Strategy ETF.
According to the August 1 filing, the Roundhill Ether Strategy ETF is an actively managed fund that seeks capital appreciation by investing in CME-listed front-month Ether futures contracts.
Similar to Bitwise, the fund plans to invest up to 25% of its assets in a wholly owned subsidiary organized under the laws of the Cayman Islands.
VanEck: VanEck Ethereum Strategy ETF
Filed: 08/01/2023SEC Response: 10/16/2023Listing Exchange: Not specified
VanEck, which is also among the spot Bitcoin ETF hopefuls, appears to be going big on Ethereum: according to the August 1 filing, the total value of the ETH to which the VanEck Ethereum Strategy ETF is planning to have economic exposure is approximately 100% of its total assets.
If for any reason such as exceeded position limits or liquidity constraints, the fund is unable to achieve the target exposure, it may invest in equity securities of ETH-related companies, i.e. companies listed on a U.S. stock exchange that the fund’s adviser believes provide returns that generally correspond, or are closely related, to the performance of ETH or ETH futures.
“For example, the Fund may invest in U.S. listed companies offering digital asset trading platforms,” reads the filing
In addition to ETH futures, the VanEck Ethereum Strategy ETF expects to have “significant holdings” of cash and fixed income investments, which are intended to provide liquidity and serve as collateral for the fund’s ETH futures, as well as to engage in “active and frequent trading of portfolio holdings.”
Proshares: Short Ether Strategy ETF and ProShares Ether Strategy ETF
Filed: 08/01/2023SEC Response: 10/16/2023Listing Exchange: Not specified
On August 1, ETF-issuer ProShares filed for two different Ethereum-focused ETFs: Short Ether Strategy ETF and ProShares Ether Strategy ETF.
The former seeks daily investment results that correspond to the inverse (-1x) of the daily performance of the S&P CME Ether Futures Index, whereas the latter seeks to provide capital appreciation primarily through managed exposure to CME-listed Ether futures contracts, with the investment objective being “non-fundamental,” meaning it may be altered by the Board of Trustees without the approval of the fund’s shareholders.
Similar to the Bitwise Ethereum Strategy ETF, both Proshares’ Ethereum futures ETF seek to to qualify as regulated investment companies, meaning that the size of the fund’s investment in their corresponding subsidiaries, which will also be based in the Cayman Islands, will not exceed 25% of the total assets at each quarter end of the fiscal year.
Grayscale Investments: Grayscale Ethereum Futures ETF
Filed: 08/01/2023SEC Response: 10/16/2023Listing Exchange: Not specified
On May 9, Grayscale Investments, best known as as the sponsor of the troubled Grayscale Bitcoin Trust (GBTC), announced the formation of Grayscale Funds Trust—a Delaware statutory trust structure that encompasses three new funds: Grayscale Ethereum Futures ETF, Grayscale Global Bitcoin Composite ETF, and Grayscale Privacy ETF.
Just a week later, the firm submitted amendments to its SEC filing to remove mentions of the Ethereum Futures ETF though, only to re-apply for the offering on August 1.
The updated filing states that the Ethereum Futures ETF is an actively-managed fund that seeks to achieve its investment objective primarily through exposure to Ethereum futures contracts, purchased via a Cayman Islands-based subsidiary.
The fund is also planning to hold approximately 100% of its net assets in Ethere futures contracts, however, it may also have significant holdings of cash and cash equivalent investments, such as U.S. Treasury Bills or repurchase agreements.
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