Ether ETF competition stiffens as firms disclose fees

The battle for potential Ether ETF assets is already underway — even as the funds have yet to launch. 

Issuers including BlackRock Inc., Fidelity Investments, Invesco Ltd and Bitwise Asset Management Inc. submitted paperwork with the Securities and Exchange Commission Wednesday outlining how much they would charge for their respective Ether ETFs, which would directly hold the second-largest cryptocurrency. The filings came in anticipation of the funds debuting as early as next week; the firms are still awaiting a final required sign-off from the regulator.

BlackRock said it would charge 0.25% for its yet-to-launch product, though it’s issuing a reduction for the first 12 months or $2.5 billion gathered in assets. Fidelity said it would also charge 0.25%, though it, too, is waiving it through the end of the year. The company didn’t impose a limit on assets. Crypto-native 21Shares and Bitwise are asking for 0.21% and 0.2%, respectively, with sweeteners attached as well.  

All in all, the proposed fees run from as low as 0.19% as put forward by Franklin Templeton, to 2.5% for Grayscale Investments LLC, which is looking to convert an existing fund into an Ether ETF while also potentially debuting another version with a lower expense ratio. 

The so-called fee war has intensified in the more than $9 trillion arena in the US as the bid to offer the lowest-cost products has often led to the most inflows. The competition was more intense prior to the launch of spot-Bitcoin ETFs in January with issuers including BlackRock and Invesco dropping their costs in the days leading up to approval. 

Ether rose 1.5% to $3,467 as of 8:38 a.m. in New York. It has gained around 50% this year, comparable to the increase registered by Bitcoin.

“It is odd that the market is not more excited — BTC has been slightly outperforming ETH over the past few days,” said Noelle Acheson, author of the Crypto Is Macro Now newsletter. “This could signal low expectations of investor interest — after all, the ETFs won’t be distributing staking rewards, which essentially makes the opportunity cost of holding these products quite high.”

In May, the SEC signed off on a proposal by exchanges to list the products, another landmark for the crypto industry. A separate approval is needed before they can be launched. 

These funds, which would hold Ether — the second-largest cryptocurrency after Bitcoin — directly, could see inflows of between $4.7 billion to $5.4 billion in the six months after they debut, according to a recent report from Citigroup. The flows, however, could skew lower because Bitcoin ETFs launched earlier this year and any investors looking to get crypto exposure may have already done so when those funds entered the market.

The majority of the asset managers in the Ether-funds race also launched spot-Bitcoin ETFs in January, which thus far have raked in around $16.6 billion in total net inflows. 

Asset managers have been making concessions to win SEC approval, notably on so-called staking, or the process of earning rewards for blockchain maintenance. Fidelity said it will keep the Ether it buys as part of the ETF out of staking. Staking is a key issue for Ether because it raises questions about whether the token should be treated as a security.

“We have seen this story play out in the Canadian ETF landscape, which launched spot crypto products on BTC and ETH in 2021. The BTC launches were very successful but ETH was far less so,” said Stephane Ouellette, chief executive officer of FRNT Financial. “In general, ETH participants engage in more involved on-chain activities, so getting exposure to a trust or fund product is less appealing.”