Podcast Notes | Interview with Bloomberg Analyst: Opportunities in Crypto ETFs and Market Response
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Podcast Notes | Interview with Bloomberg Analyst: Opportunities in Crypto ETFs and Market Response
Nine Ethereum futures ETFs launched on the same day, an unprecedented event.
Navigating Web3 tides with focused insightsCompiled & Edited: TechFlow
In the same week, nine Ethereum ETFs were approved simultaneously.
What do all these SEC-approved Ethereum ETFs mean for cryptocurrency? Will Bitcoin ETFs be next?
In this episode of the Bankless podcast, hosts David and Ryan speak with Eric Balchunas, analyst at Bloomberg Intelligence, about the recent U.S. launch of multiple Ethereum futures ETFs (exchange-traded funds) and their implications for the crypto market.
Hosts: David & Ryan, Bankless
Guest: Eric Balchunas, Bloomberg Intelligence analyst
Podcast: Bankless Podcast
Original Title: "Ethereum ETFs: Everything You Need To Know"
Episode: Link
Air Date: October 10
Why Was "ETF Week" Unprecedented?
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Historically, the SEC has allowed ETFs to list sequentially based on application order. But during this special ETF week, the SEC broke tradition by allowing multiple Ethereum futures ETFs to launch simultaneously. Nine Ethereum futures ETFs debuted on the same day—an unprecedented event in ETF history.
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This new SEC strategy is seen as a correction to the earlier rollout of Bitcoin futures ETFs. When the first Bitcoin futures ETF launched—ProShares’ offering—it gained a first-mover advantage and captured most of the capital and trading volume. To prevent this from recurring, the SEC permitted multiple Ethereum futures ETFs to launch at once.
TechFlow Note: ProShares is a financial services company offering various exchange-traded funds (ETFs) focused on specific investment strategies. It provides a range of innovative ETFs designed to help investors meet their financial goals.
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Although the launch of these Ethereum futures ETFs was unprecedented, their trading volumes have been surprisingly low. Each ETF is now employing different marketing strategies to attract investors. This historic "ETF week" is widely viewed as a prelude to the potential approval of spot Bitcoin ETFs. Both markets and analysts are closely watching these Ethereum futures ETFs’ performance to anticipate how spot Bitcoin ETFs might fare upon launch.
The Significance of Ethereum Futures ETFs
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Eric emphasizes that the launch of Ethereum futures ETFs is a landmark event, serving as a bridge between crypto protocols and traditional finance (TraFi). These ETFs allow traditional market investors to enter the crypto space—specifically Ethereum—in a way that feels familiar and comfortable.
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Operating within a regulated framework, these ETFs instill confidence among cautious investors. They can gain exposure to crypto through ETFs without needing to directly hold or manage digital assets. This not only increases crypto’s visibility and legitimacy but also helps draw more mainstream capital into the ecosystem.
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While traditional investors enjoy the convenience of ETF-based crypto access, Eric stresses that value ultimately flows back into the crypto world. He describes these ETFs as the “biggest pipeline” connecting trillions of dollars in traditional capital with crypto market caps. The opening of this pipeline is seen as highly bullish for crypto, with massive capital inflows expected to significantly accelerate the growth and maturation of the crypto market.
Futures ETFs vs. Spot ETFs
Futures ETFs
Advantages
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Liquidity: Futures ETFs generally track their underlying asset prices well during daily trading, offering investors a convenient entry point.
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Accessibility: They provide traditional investors with access to the crypto market, especially those who prefer not to hold crypto directly.
Disadvantages
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Rolling Costs: Futures ETFs require periodic “rolling” of contracts, which can incur additional costs and efficiency losses. For example, if an investor expects Ethereum to rise 20%, the actual return via a futures ETF might only be around 18% due to rolling costs.
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Gradual Obsolescence: Eric predicts that once spot Bitcoin and Ethereum ETFs are approved, futures ETFs may become marginalized or even disappear.
Spot ETFs
Advantages
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No Rolling Costs: Unlike futures ETFs, spot ETFs do not require contract rolling, eliminating associated costs and inefficiencies.
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More Direct Market Exposure: Spot ETFs offer investors a more direct link to crypto assets and are likely to become the preferred choice for mainstream investors.
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Suitable for Long-Term Holding: For long-term investors, spot ETFs may be a better option as they more accurately reflect the value of the underlying asset over time.
Disadvantages
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Not Yet Launched: Spot Bitcoin and Ethereum ETFs have not yet been approved, so their real-world performance and market adoption remain to be seen.
The Importance of Ethereum ETFs & Is ETH a Security?
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ETH ETFs offer a level playing field, allowing investors to act purely on their market outlook rather than being influenced by other distortions. Compared to products like GBTC, ETH ETFs don’t carry large premiums or discounts, providing fairer investment opportunities.
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A key feature of ETFs is their arbitrage mechanism—shares can be created and redeemed—which ensures the ETF price stays closely aligned with the net asset value of its underlying holdings.
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Futures ETFs suffer from rolling costs, an added variable that can reduce investor returns. They are considered “red light” ETFs due to extra risks and costs, whereas spot ETFs are seen as safer and fairer since they directly track the underlying asset without such complications.
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ETH is the native cryptocurrency of the Ethereum network, used not only as a store of value but also to pay transaction fees and execute smart contracts. In the U.S., securities laws have clear criteria for what constitutes a security. If ETH is classified as a security, it would face stricter regulatory and compliance requirements. However, due to the novelty and complexity of cryptocurrencies, fitting them into existing legal frameworks remains challenging.
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Whether ETH qualifies as a security remains unresolved and will require further discussion and decisions from regulators, legal experts, the crypto community, and other stakeholders.
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The launch of ETH ETFs marks a significant step toward maturity and mainstream acceptance for the crypto market. These products could attract more traditional investors—especially those guided by financial advisors—into the crypto space.
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Eric predicts that spot Bitcoin and Ethereum ETFs will eventually be approved—a major milestone for crypto. Their launch would further accelerate mainstream adoption and market maturation.
The Impact and Significance of Ethereum ETFs
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Among all ETF investors, financial advisors represent approximately 70–75%, while institutional and retail investors account for 10% and 15%, respectively. Financial advisors in the U.S. manage around $30 trillion in assets—a vast market. ETFs offer these advisors a familiar and convenient investment vehicle.
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As individuals accumulate wealth, they increasingly seek help from financial advisors for asset management, estate planning, and tax optimization. The introduction of ETH ETFs opens the door to this $30 trillion pool, significantly expanding crypto’s potential investor base.
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As more financial products like ETH ETFs enter the market, crypto is likely to gain broader acceptance—particularly among traditional financial advisors and their clients. While short-term trading volumes for ETH ETFs may not spike immediately, these products are expected to drive substantial long-term capital inflows into crypto.
Appeal of Ethereum ETFs to Different Investors
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Eric says he maintains 75% confidence that a spot Bitcoin ETF will be approved in 2023. He sees the SEC’s collaboration with issuers as a sign of willingness and openness. Market reaction to such an approval could be extremely positive, as spot ETFs are viewed as more direct and equitable investment vehicles.
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Institutional investors favor high-liquidity ETFs because they allow easy entry and exit without disrupting the market. ETF trading is anonymous, contract-free, and highly flexible. During crises, institutions know they can quickly exit positions.
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Retail investors may lean toward more volatile products, such as 2x leveraged Bitcoin ETFs. They tend to embrace risk in pursuit of higher returns. In contrast, financial advisors are likely to prefer stable, long-term, low-cost ETFs offered by major institutions like BlackRock.
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Even conservative investors often allocate a small portion of their portfolio to higher-risk investments for potential outsized returns. Crypto ETFs show strong product-market fit with retail investors and are expected to attract a large number of them.
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