Australia has become one of the first countries to allow spot cryptocurrencies to be traded, albeit facing delays before launch.
Initially set to go live in late April, Australia's first physically backed crypto products went live on 12 May.
But for those who are interested in buying Ethereum through an exchange-traded fund (ETF), they can soon do so, and investors are already hyping up the newest way to buy crypto assets.
How to buy ETFS 21Shares Ethereum ETF (EETH)
- Compare online brokers. Choose a broker that will allow you to exchange on the CBOE markets.
- Open and fund your brokerage account. Complete an application with your personal and financial details. Fund your account with a bank transfer, PayPal or debit card.
- Search for the 21Shares Ethereum ETF. Find the ETF by name or ticker symbol: EETH.
- Decide on how many to buy and at what price. Weigh your budget against a diversified portfolio that can minimise risk through the market's ups and downs.
- Check in on your investment. Congratulations, you've invested in the 21Shares Ethereum ETF.
How does an Ethereum ETF work?
When you buy an ETF you take a small ownership in the underlying assets. In the case of an Ethereum ETF, you guessed it, you own part of the Ethereum coin.
Ethereum ETFs can be broken down into 3 main categories being the "shovels and picks approach", futures contracts and a physically backed ETF.
The first approach is a basket of companies that makes money off Ethereum. The second is based on futures contracts, meaning you are trading on the price of Ethereum in the future without owning it. And the third is a physically backed Ethereum ETF where the provider will buy Ethereum on your behalf and you will own a percentage of the Ethereum the fund owns based on how much you invest.
The 21Shares Ethereum ETF is the third option, allowing you to own Ethereum through a fund.
What we know about the 21Shares Ethereum ETF
We know ETF Securities and 21Shares have partnered up to launch 2 ETFs: 1 exposed to Bitcoin, the other to Ethereum.
The 21Shares Ethereum ETF which allows you to buy Ethereum through an ETF, is 1 of 3 ETFs that have received regulatory approval to list.
But the historic launch of cryptocurrency-backed exchange-traded funds that were set to begin trading on 27 April has been delayed at the last minute, meaning none of them are currently listed.
Originally announced in December last year, the ETF will track the price of Ethereum in Australian dollars and is fully backed by crypto held in cold storage by Coinbase.
In a statement last year, ETF Securities head of distribution Kanish Chugh said that the funds would allow Aussie investors to overcome some of the challenges of investing in crypto such as low exchange quality, weak custody arrangements, the risk of hacking and the potential loss of private keys and passwords.
The head of distribution noted that crypto assets including Bitcoin and Ethereum were 2 of the best performing assets over the last decade, with Ether topping the list over the last 5 years.
The risks of the 21Shares Ethereum ETF
While ETFs generally have the label of being safer due to taking a diversified approach, this is not the case when it comes to the 21Shares Ethereum ETF.
Instead, you will be facing most of the risks associated with Ethereum, albeit you're less likely to be impacted by security risks.
You wouldn't invest in Ethereum without doing your research first, so make sure you understand some essential facts about Ethereum and an Ethereum-based ETF.
Price volatility: Ethereum's price is largely based on speculation, which means it can rise or fall in a short time. Owning an ETF that tracks Ethereum's performance means you will be exposed to the same risks. It is not uncommon for Ethereum to lose more than 10% of its value in a single day. A common piece of advice in investment circles that is applicable here is "only invest as much as you can afford to lose".
This is not a diversified ETF: Unlike many ETFs that simply track a market, this ETF will not give you the benefit of diversification. This means you will not have a basket of assets to protect your portfolio. Instead, you will be exposed purely to Ethereum. If the price of Ethereum falls, so does your investment.
Regulation risk: The regulatory environment for Ethereum is still evolving. Many regulators and financial bodies around the world are reconsidering how they treat Ethereum. This is in regards to purchasing, taxing or outright banning it. Even though Australia has fairly supportive crypto regulatory laws, the worldwide landscape is important to watch. As such, your investment is exposed to these regulatory factors.
Are cryptocurrency ETFs a good investment?
- Ease of investing compared with buying Ethereum itself
- Allows for all your investments to be in one place
- Legally sanctioned
- More secure than buying the asset yourself
- Allows you to take a small percentage exposure to Ethereum through ETFs
- Could be a boost for the overall market/ a new form of capital going to Ethereum
- You will pay a management fee which is unlikely to happen if you buy physical Ethereum
- Unlike other ETFs it is not diversified, as it is only exposed to Ethereum
- Ethereum is a volatile asset meaning this ETF could also be volatile
Who is the 21Shares Ethereum ETF (EETH) suited to?
ETFs are widely considered one of the easiest ways for newer investors to get started. The same can be said about an Ethereum ETF. For those who are looking to get into the space, using an ETF could be a sound strategy.
However, like any speculative investment, an Ethereum ETF comes with some risks. As such, you should be well versed in what they are and whether the product is right for you.
A product like this will largely favour retail investors who want an easy and secure way to get started in the asset class. While you can go out and buy Ethereum yourself, you would take on the security risks. Instead of having to remember passwords and hope your account doesn't get hacked, this product allows you to buy Ethereum in a secure fashion. The regulator takes on these risks.
It is also a product for those who want to keep all their assets in one place. If you have a portfolio of shares, an Ethereum ETF could be a way to gain exposure to the asset class without having the hassle of multiple trading platforms.
This particular ETF could also favour those who have a longer time horizon. Ethereum is a highly speculative asset. While its price fluctuates greatly, historically it has been the strongest performing asset class over the last decade.
Finally, it will appeal to anyone who believes in Ethereum. If you think the price of Ethereum will be worth more tomorrow than it is today, using an ETF to buy this asset may appeal to you.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.