EtherIndex LLC filed paperwork with the Securities and Exchange Commission (SEC) seeking registration under the Securities Act of 1933 for an exchange traded fund (ETF) based on Ether, the crypto-currency used in the Ethereum network. This filing is a sign of the growing confidence and support for Ether and the Ethereum network. If it is approved for trading, this ETF will broaden Ethereum’s exposure to investors globally and potentially legitimize the crypto-currency as a worthy asset class that allows for additional portfolio diversification. This ETF filing is the third for a crypto-currency with the SEC. Gemini and SolidX each filed for a bitcoin ETF earlier this year.
An ETF is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors. It is important to note that when investing with an ETF the investor does not own any of the underlying assets rather the investor owns shares of the ETF. The shares in the ETF represent units of fractional undivided beneficial interest in the net assets of the Trust.
This ETF, if approved, will allow individual investors to invest in the performance of Ether without having to go through the administrative steps necessary to purchase and own Ether directly. According to the Prospectus, the ETF’s purpose is to “provid[e] shareholders with exposure to the daily change in the U.S. dollar price of Ether, before expenses and liabilities of the Trust and as a result the value of the shares is directly related to the value of Ether held by the Trust… The Trust is authorized solely to take immediate delivery of actual ether and is designed for investors seeking a cost-effective and convenient means of gaining investment exposure to Ether similar to a direct investment in Ether.”
The approval of any virtual currency-based ETF is far from assured, as the SEC has not formally asserted regulatory authority over crypto-currencies. However, the SEC has indicated a willingness to pursue action against persons or entities who misuse bitcoin in connection with fraudulent schemes, inaccurate and inadequate publicly disseminated information, and the offering of unregistered securities.
This filing with the SEC is further evidence of the continued legitimization of virtual currencies. Moreover, the fact that the sponsors of this ETF have chosen Ether as an investment vehicle even after the recent DAO issues demonstrates their view that Ether and the Ethereum network have long-term staying power, and are poised for continued growth.