Author: Jack Inabinet, Bankless; Translation: Golden Finance 0xxz

On October 2, 2023, nine ETFs backed by Ethereum futures were listed and traded on U.S. stock exchanges. Now it is easier for U.S. investors to acquire Ethereum positions, but do investors really need it?

Hot money did try to front-run this news over the weekend, as investors rushed to go long on these products as they were about to launch, driving a $500 million (10%) increase in open interest in Ethereum futures on CEX and pushing Ethereum above $1,700.

Despite high hopes from traders, demand for the ETH futures ETF has not materialized, with the cumulative offering processing less than $2 million in volume as of noon, leading to a sell-off at the market open on Monday.

While this is respectable volume for a normal ETF listing, it pales in comparison to BITO, the first Bitcoin futures ETF that many use as the basis for ETH futures volume predictions. BITO launched on October 19, 2021 when Bitcoin was at the peak of its bull run at $60,000 and saw $200 million in volume in the first 15 minutes of trading.

There is no doubt that the bull market mania has largely contributed to the success of BITO, and trying to replicate the success of this ETF should be considered unrealistic. However, it is clear that the issuers have high expectations for their ETH futures product.

For example, VanEck ran a marketing campaign on Twitter called#EnterTheEtherto promote its EFUT product and pledged to donate 10% of profits to the Protocol Guild, a public goods funding mechanism that supports ethereum core contributors.

EFUT is indeed one of the most actively traded ETH funds thanks to VanEck’s marketing efforts, but with less than $400,000 in volume completed on its first trading day, the listing may be a disappointment.

The lack of interest in this new generation of ETFs is partly due to the fact that they are futures-based products.

Unlike cash ETFs, which hold the underlying shares of the asset they track, futures ETFs buy futures contracts that expire every 30 days. Rolling these contracts exposes investors to the effects of premium and discount (i.e., the price of the next month's contract may be higher or lower than the price of the expiring contract), which means that futures ETFs are a suboptimal way to track the price of an asset compared to cash products.

Worryingly, however, the limited demand for ETH futures products appears to be indicative of the market’s overall apathy toward cryptocurrencies, a finding that has some rethinking the impact that a Bitcoin spot ETF product might eventually have.

Still bullish

Despite disappointing inflows and lack of investor interest in these ETH futures ETFs, the listing of these ETFs is a major bullish argument for the cryptocurrency!

The SEC has long refused to provide any clarification on Ethereum’s legal status, with its chairman Gary Gensler refusing even to answer the question to Congress, but the approval of these ETFs appears to solidify the asset’s status as a non-security.

A U.S. court recently ordered the SEC to vacate its order rejecting Grayscale’s application to convert its trust-based Bitcoin product into an exchange-traded fund (ETF), with the court finding that the spot product is similar to approved futures products and should receive similar treatment.

Under the influence of this decision, some people worried that the SEC might take measures to remove Bitcoin futures ETFs from exchanges to prevent spot ETFs from being listed; however, the agency approved a new crypto futures ETF product, which seemed to make this move unfeasible!

Meanwhile, the SEC has finally started interacting with BTC spot applicants — a welcome shift from their typical filing pattern — and ETF insiders are feeling increasingly bullish on the possibility of a BTC spot ETF; now the same applies to Ethereum. Confirming the news, Grayscale has even applied to convert its Ethereum Trust (ETHE) into a spot ETF.

Futures ETFs are not a desired product for investors, but with Ethereum’s legal status now on par with Bitcoin, futures ETFs approved for both, and a positive shift in sentiment, spot ETF approvals for both Bitcoin and Ethereum seem almost inevitable!