If you are interested in adding Ethereum (ETH) exposure to your portfolio but don’t want to deal with the complexities of buying and securely storing ETH coins, there are a handful of alternative investment options for you.
In this guide, we will examine the growth of Ethereum investment products and list some of the most popular Ethereum-based investment vehicles you could invest in today.
The Ethereum investment ecosystem is growing
A substantial amount of money has flown into the Ethereum ecosystem in the last twelve months, fuelled by the growth of decentralized finance (DeFi), the non-fungible token (NFT) mania, and the crypto bull market of Q1/2021.
However, investing in the Ethereum ecosystem can be a steep learning curve. Even for many crypto enthusiasts, purchasing ERC-20 tokens on decentralized trading platforms or yield farming to earn yield in the DeFi market can be challenging.
The alternative – for anyone looking to add exposure to the potential future success of Ethereum to their portfolios – is to buy investment vehicles that provide indirect exposure to the price development of the blockchain’s native coin.
For retail investors, buying regulated crypto investment products means not having to deal with the technicalities involved in buying and safely storing crypto. Moreover, institutional investors prefer to deal in regulated investment products rather than operate in the crypto capital markets directly, which most fund managers are not allowed for compliance and regulatory reasons.
As a result, both the number of available Ethereum-based investment vehicles and the funds flowing in these investment products are on the rise.
Top Ethereum investment products
Now, let’s take a look at three different Ethereum-based investment vehicles that you could add to your portfolio to gain exposure to the price development of ETH without actually holding the token yourself.
Grayscale Ethereum Trust
The Grayscale Ethereum Trust (ETHE) is the first publicly quoted Ethereum investment vehicle in the US, and the second crypto investment product to be regulated by the Securities and Exchanges Commission (SEC) after the Grayscale Bitcoin Trust. The trust focuses entirely on the Ethereum economy, allowing investors to gain exposure to ether while avoiding the hassle of buying, holding, and storing ETH directly.
A trust functions in a similar way as a mutual fund, allowing for the easy transfer of shares under the investor’s name to beneficiaries, according to estate laws. Moreover, the familiar structure makes it easy to engage finance and tax advisors.
The Grayscale Ethereum Trust shares are quoted on the over-the-counter (OTC) markets, and investors can purchase and sell shares via most traditional brokerage accounts at market prices. As of February 3, the market price per share is USD 19.67.
To date, Grayscale has just over USD 8bn in assets under management (AUM), making it one of the largest crypto management firms in the globe. Since its launch in 2017, the ETH Trust has recorded an impressive 225% growth across the board.
To invest in the ETH Trust you must be an accredited investor and put in a minimum of USD 25,000. Each share reflects the value of ETH held by the Trust, minus costs and other liabilities. To be precise, each share represents ETH 0.01001839.
It’s important to note that after a six-month holding period shares are eligible to be resold in the secondary market. The Trust is also offered on a periodic basis and always through private placement.
The digital assets held by the Grayscale Ethereum Trust are stored in offline storage to protect the investments.
Main features:
- USD 8bn AUM;
- minimum investment USD 25,000;
- sponsor’s fee 2.5% anually;
- performance fee 0%;
- investor qualifications (US3896381072).
Ethereum Futures
In 2021 the CME Group, which is considered to be the world’s largest and most diverse derivatives marketplace, launched CME Ether Futures, further building on its growing crypto derivatives offerings.
This was in response to the increasing appetite by institutional investors for transparent, exchange-listed crypto derivatives. The addition of ether, along with Bitcoin Futures and Options, opened the doors for a variety of clients to deploy a range of trading strategies, from hedging their positions in the spot market to gaining leveraged exposure to ether.
The Chicago-based exchange commenced trading in ether contracts in February, with the first contract registering an opening price of over USD 1,500.
Futures contracts are legal agreements to purchase or sell an asset at a predetermined price at a specific date in the future. In other words, CME Ether Futures allow you to speculate on the price development of ETH without having to own the underlying asset.
CME’s ether futures are cash-settled and based on the exchange reference rate that includes data from major cryptoasset exchanges, such as Coinbase, Gemini, Bitstamp, Kraken, and itBit.
The derivatives exchange status as a regulated benchmark provider gives investors confidence to invest in Ethereum through futures contracts based on the CME CF Ether-Dollar Reference Rate.
In order to trade ether futures, you must open an account with a registered futures broker that will handle your account and guarantee your trades.
CME Ether Futures come with the following specifications:
- a single contract is for ETH 50;
- the futures trade under the ticker ETH;
- the prices are quoted in USD and cents per ETH;
- ether futures trade on CME Globex Sunday through Friday from 5 pm to 4 pm CST;
- minimum of 5 contracts per block;
- maximum order size of 100 contracts;
- minimum price fluctuations: outright USD 0.5 per ether / USD 25 per contract;
- calendar spreads: USD 0.05 per ether / USD 2.5 per contract.
CME Ether futures are also eligible for exchange for physical (EFP) transactions, provided both parties privately negotiate a transaction to exchange a futures contract for the equivalent value on the spot market position or vice versa.
Ethereum Exchange-Traded Notes
Finally, you can also invest in Ethereum through Exchange Traded Notes (ETN) that track the price of ether.
An ETN is an unsecured debt note issued by a financial institution. Similar to a bond, an ETN can be held to maturity or purchased and sold at will. In practice, ETNs are similar to exchange-traded funds (ETFs) since they are both designed to track the price of an underlying asset, which in this case is ether.
When selecting an Ethereum ETN, you should consider several factors in addition to the underlying index and performance of the ETN, such as the investment products’ fees and how liquid it is compared to its peers.
Currently, there are numerous Ethereum-based ETNs trading on exchanges across Europe, where ETNs are highly popular among retail investors.
VanEck Vectors Ethereum ETN would be an example of an Ethereum ETN. The Liechtenstein-based ETN has the following features:
- the total expense ratio of 1% per annum;
- net assets USD 90m
- physically backed;
- fund currency is USD;
- listings on Deutsche Börse, SIX Swiss Exchange, Euronext Amsterdam, Euronext Paris.
The Ethereum investment ecosystem has grown to attract more funds from traditional investors who prefer to invest on a regulated exchange as opposed to investing in the crypto spot markets directly.
In light of the growing brand recognition and market capitalization of ETH, we may see more funds flowing into these investment products in the near future.
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