Analysts claim institutional interest in spot ether ETFs is diminished without staking

The Block2024/06/13 12:34

By:Brian McGleenon

Many institutional players may wait for staking before allocating into spot ether exchange-traded funds, an analyst said.

Cryptocurrency derivatives trader Gordon Grant told The Block that the appeal of spot ether exchange-traded funds is diminished for institutional players until staking is available, and many might wait for staking to be approved before allocating to such funds. Grant noted that, until staking for spot ether ETFs is enabled, institutional traders will use on-chain solutions instead.

Grant said that, unlike bitcoin, holding ether directly could present a more meaningful performance edge over spot ether ETFs for institutional investors. "For institutional players especially, until staked ether exchange-traded products appear, it is likely they would have the sophistication to go to onchain solutions instead," Grant said.

Staking ether involves depositing the digital asset to help secure the Ethereum ETH -3.29% blockchain — and earning yield in exchange. However, current applications for spot ether ETFs have excluded staking components due to regulatory uncertainties and the U.S. Securities and Exchange Commission's stance on staking activities within such funds.

Grant is not the first to make this claim. In a recent note, JP Morgan said the lack of staking for approved spot ether ETFs makes these products less attractive as an investment product. Since the ETFs removed staking from their filings, this makes them "less attractive compared to platforms that offer staking yield," the analysts argued.

JPMorgan expects spot ether ETFs to attract up to $3 billion in net inflows for the remainder of this year. If staking is permitted, the figure could rise to as much as $6 billion, the company stated.

Hong Kong may allow spot ether ETF staking, Animoca cofounder says

Meanwhile, Hong Kong asset managers are working to include staking within their spot ether ETFs to get the staking reward feature approved this year, Animoca Brands Chairman Yat Siu told The Block. Siu said that Hong Kong is “having discussions now for staking” and that the likelihood of staking being approved in Asia ahead of the U.S. is an “almost foregone conclusion."

“In terms of how quickly, there’s an optimistic side of me that wants it to happen within the year,” Siu said. “If we don't get much movement on staking within the year, then I would say the election outcome will be the other determinant in terms of how quickly that could happen in the U.S.”

Spot ether ETFs are nearing availability in the U.S. after the SEC approved key regulatory filings from applicants on May 23. However, they are not yet cleared to trade on exchanges because the regulator must also approve their S-1 filings before that can occur.

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