Cryptocurrency ETFs are exchange-traded funds created to follow digital assets. They can be traded like regular stocks through various brokerages and are liquid. These ETFs are backed by crypto derivatives like futures contracts or crypto assets like BTC, ETH, etc. They do not require a wallet or currency conversion. They have low cost and risk of ownership. Cryptocurrency ETFs are easy to understand.
Ethereum futures are contracts that bind parties to buy or sell ETH at a certain price at a future date and time. These contracts allow investors to hedge against the market movements of Ethereum while gaining exposure to it. When the contract expires, one party will make a profit while the other loses. The exchange is performed based on the spot price at the agreed date, at either a premium or a discount.
An Ethereum Futures ETF is a financial tool used to follow the futures price of ETH rather than its spot price. This tool helps investors invest in Ethereum futures through brokerages without any knowledge about crypto trading. The value of the ETF comes from the price movement of Ethereum futures. An investment company has to open positions in the Ethereum futures market and peg the ETF’s value to their contracts to issue this ETF. Investors can diversify their investment portfolio and be exposed to the Ethereum market without owning any ETH. Trading occurs during trading hours on traditional markets.
Ethereum futures can be traded on the Chicago Mercantile Exchange (CME). It has a position limit of 8,000 contracts for Ethereum futures for a month. Each contract is valued at 50ETH. In addition, Kelly Strategic Management plans to launch the Kelly Ethereum Ether Strategy ETF. It is an ETF invested in cash-settled Ether futures contracts. It will be traded publicly on registered commodity exchanges. The difference in the futures contract’s price and ether’s value will be settled in cash upon expiring.
Why should you invest in Ethereum Futures ETF?
Ethereum futures ETFs are securities traded that expose traders to the price movement of Ethereum futures contracts. They can invest in it without a crypto platform to track Ethereum futures and not Ethereum directly. It helps you hedge your risk, diversifies your portfolio, and gain exposure to the Ethereum market while generating gains.
- Investors are exposed to reduced risk compared to Ethereum futures trading on crypto exchanges. There is a prospectus where you can see the objectives and strategy your investment fund will follow. It offers a long-term opportunity to generate economic gains. Also, it promises transparency which can help you know if it meets your investment objectives. You will know what investment your ETF holds, its weight, and changes in any investment.
- It offers flexible transactions. It is easy to trade Ethereum futures ETF due to being an ETF, unlike Ethereum futures on crypto exchanges. As a result, they are available to every investor across traditional exchanges. In addition, it offers various holdings with a single transaction, simplifying the trading process.
- It is cost-effective as investors can save money with just one transaction per trade. Investors can avoid the accumulation of expense ratios, including commission and managing fees. Since it is not settled after opening, transaction fees are lower.
- It offers investors taxes advantages as profits from investments are taxed differently, depending on the duration. It is a tax-efficient investment opportunity. Taxes are not incurred until it is sold. It is mostly taxed at the capital gains rate. However, taxes are paid on dividends as they’re distributed.
- Investors can enjoy full investment exposure with no minimum investment requirement. Ethereum futures ETF can be exchanged through a brokerage, exposing them to the market without owning Ethereum.
- Ethereum futures ETF is a highly liquid financial instrument trading throughout market hours. Liquidity represents how easy changing your investment to fiat currency or position will be. A highly liquid investment implies easy entry and exit from an investment.
- An Ethereum futures ETF exposes you to derivatives that come with its flexibility. You can decide to manage it actively or passively. Depending on the brokerage, you may get periodic dividends deposited into your account. Also, it is structured easily to understand.
Basic Things to consider before Investing
Before investing in Ethereum futures ETFs, you must consider some basic things. First, like any ETFs, you will pay a commission for buying or selling it. These commissions can accumulate over time to become exorbitant. However, some brokerages don’t charge commissions, so check before trading.
Spread represents the difference between the highest price you can buy the ETF and the lowest price you can sell. A wider spread costs higher. Investors pay for a spread on their trades. Trading Ethereum futures ETFs are done at market prices. Due to this, investors can pay more (a premium) or less (a discount) when trading it.
The liquidity is provided by market makers who trade the ETF at intervals. High liquidity implies low bid/ask spreads and vice versa. Liquidity affects the selling price. Ethereum futures ETF are pegged to Ethereum futures which are highly volatile. It is essential to monitor market trends as volatility can expand bid/ask spreads. Also, it can affect premiums and discounts. Importantly, you need to analyze the features, risks, benefits, and performance properties of the ETF.
Also, it should be noted that Ethereum futures ETF are liable to counterparty risks, diluted exposure, decay, and divergence. Decay is the cost incurred for rolling over contracts. It might be at the expense of investors. Divergence occurs when the futures price doesn’t correlate with the spot price of Ethereum.
Ethereum futures ETF allows institutional investors to enter the Ethereum market. It can facilitate the increase in the value of Bitcoin. It gives investors an edge over the Ethereum futures trading on crypto markets. Also, it enables the onboarding of conventional traders into the Ethereum market without prior knowledge of the crypto space. However, beware of the volatility of the crypto space and invest wisely.