May 22, 2024 - Economy

🪑 Valkyrie sits out the ether ETF race

Illustration of the Ethereum logo peeking out from behind a curtain.

Illustration: Victoria Ellis/Axios

As much as there might be political appetite for ether ETFs, there might not be much of a business case for them right now.

The big picture: There are nine would-be issuers eagerly waiting to see if ether ETFs get approved this week, but Valkyrie is not one of them.

  • 👆 That's the shop behind the bitcoin ETF called BRRR.

Behind the scenes: "When everybody started filing their ETH applications, we [polled] a lot of financial advisors, wirehouses, insurance companies, and pensions funds we work with and there's just no appetite for them like there is for bitcoin ETFs," Valkyrie's Steven McClurg said in an interview this morning with Axios.

  • Case in point: The October-launched ether futures ETFs haven't been much of a hit, he said.

Zoom in: McClurg says demand in the U.S., especially among advisors, isn't there because of regulatory risk (the outstanding question of whether ether is a security) and because shops just haven't done their homework on it.

  • Plus, any retail interest will likely remain diminished because, by the looks of ether ETF applications, staking won't be allowed.

The intrigue: It's not just that ETF shareholders wouldn't be allowed the rewards from staking, but also the fact that the SEC would disallow staking of the underlying custodied ether — period, McClurg said.

  • That makes the product less attractive to issuers, too.

Zoom in: Chris Perkins, president of CoinFund, described the slate of proposed ether ETFs as "substandard" in an X spaces call, because of the no-staking element.

  • "The beauty of ETH for investors, and this is not investment advice, is that real yield. It actually compares very favorably to traditional rates."
  • In Canada, he said, 50% of underlying ether in the ETF is allowed to be staked.

The bottom line: Bloomberg Intelligence analyst James Seyffart on the same X spaces call said he expects ether ETF demand to be about 20% of bitcoin ETF flows. He also called the ether futures ETF launches "a complete flop."

  • Valkyrie is even more pessimistic, expecting flows would be less than 10% of what they were for bitcoin.
  • "We just don't see the market for 10 issuers, or nine in this case," McClurg said.

💭 Crystal's thought bubble: The ether ETF approval, if it happens, might be a more symbolic victory for crypto, less a market-shattering one.

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