The SEC finally cleared spot Ethereum ETFs for trading on July 23, 2024. But, which one to invest in? In this article, we will compare 9 funds to pick the best Ethereum ETF.

Spot Ethereum ETFs are funds that hold ether directly. Ether is the cryptocurrency that supports the Ethereum blockchain network. It is the second largest cryptocurrency with a market capitalization of $411 billion. Similar to bitcoin ETFs, Ethereum ETFs are grantor trusts. This means that investors will own a share of the ether held by the Ethereum ETF.

Comparison of 9 Ethereum ETFs

While all 9 Ethereum ETFs hold the same asset, not all of them are created equal.

1. Expense Ratios

The first point of comparison is on expense ratios for choosing the best Ethereum ETF. If you are a buy-and-hold investor, focusing on fees is crucial. Here is a table that summarizes the expense ratios for these funds.

I show these expense ratios before and after the waivers in parentheses. These funds are still building momentum. For this reason, they provide temporary fee waivers for investors to buy in.  The fee waivers come with limitations. These include a certain period of time or until a fund reaches a certain asset threshold. For instance, Franklin Ethereum ETF commands a 0.19% expense ratio. This ratio is waived until January 31, 2025 or until the fund reaches $10B in assets, whichever comes first.  

The Grayscale Ethereum Mini Trust has the lowest expense ratio of 0.15%. We see that Grayscale offers two funds with mini being one of them. In fact, their main ether fund used to hold ether futures before July 23. After that, Grayscale converted its ether futures fund to hold ether directly. They still continue charging the highest expense ratio of 2.50% though.

Grayscale learned from its past mistake with the spot bitcoin ETF. The sponsor created a separate mini fund to attract retail investors. Hence, they spun out 10% of ether from their main Grayscale fund and created this mini fund.

The Grayscale main fund aside, other ETFs charge expense ratios within the 0.05% deviation.

2. Liquidity Comparison for Ethereum ETFs

Liquidity is another consideration for investors. It is especially important for those who trade often. By liquidity I mean how fast you can trade ETF shares without material impact on the price. You want to buy a spot ether ETF with a relatively large trading volume and a low bid-ask spread.

One metric to focus on is the bid-ask spread percent. You calculate it as the dollar spread (ask minus bid) divided by the average of bid and ask. The lower the spread percent is, the better price you get.

Most ETFs must disclose a 30-day median bid/ask spread percent on their websites. Of course, only a few trading days passed by since spot ether ETFs got approved. I compiled this metric where available.

We see that it is under 0.08%. But it could be lower. For instance, the current bid-ask spread percent for iShares Ethereum ETF is 0.04%, which is quite tight.

Another metric that can signal a high liquidity is trading volume and dollar volume. The dollar volume is a product of the share price and trading volume. The table above shows volume numbers for one day. Ideally, we should use averages for the past several months. Unsurprisingly, iShares and Fidelity lead with the highest dollar volume so far. Grayscale and Bitwise are not too far behind.  

Also, you can evaluate ether ETFs’ liquidity by their net asset sizes. The bigger the size is, the more likelihood that the funds will stick around. Unfortunately, it is too early to assess this metric. While I compiled net asset positions for each ETF above, these numbers are changing.

Grayscale Ethereum main fund is the largest, but it consists of legacy capital that will likely leave the fund and flow to FIdelity and iShares ETFs. If we look at bitcoin ETFs for guidance, iShares and Fidelity will likely lead the pack going forward.

3. Trading Costs

Another factor is the trading cost that a fund incurs. The best Ethereum ETF should have very minimal trading costs. You may know that a typical ETF creates shares through in-kind transactions. This means that an ETF itself is not responsible for trading assets.

Another intermediary, usually a large broker-dealer, assembles underlying securities (ether in our case) on behalf of an ETF. These agents are known as authorized participants. Later, authorized participants exchanges these securities for ETF shares I showed above.

Things are different with spot ether ETFs. The funds are responsible for posting cash and trading ether when ETF shares are created or redeemed. This leaves the fund and its investors responsible for any trading costs. Thus, the skill and size of a fund manager becomes very important.

Most of the ethereum funds are under the management of large or experienced financial institutions. So, this is unlikely to be a concern.

4. Other Factors to Consider for the Best Ethereum ETF

Another consideration could be giving back to the community. Certain funds are committed to donating part of their profits to the crypto community. For instance, VanEck will donate 10% of its Ethereum fund profits to Protocol Guild. Likewise, Bitwise will donate 10% of its profits to Protocol Guild and PBS Foundation. If this is one of your preferences, Bitwise or VanEck can be a good choice.

A final point worth mentioning is ether staking. The SEC denied Ethereum ETFs to engage in staking. Staking allows ether holders to commit their crypto to update the blockchain ledger. In return for such commitment, investors receive rewards that could range from 2% to 4% per year. This is an extra income that Ether ETFs won’t see. So, if you are willing to engage in staking yourself, you may have a performance edge over ether ETFs.

Takeaways for the Best Ethereum ETF

So, where does all this leave us for the best Ethereum ETF? Based on expense ratios, size and liquidity, many Ethereum ETFs could be good options. But, Grayscale Ethereum Mini ETF stands out with the lowest fee of them all. So, if the expense ratio is important for you, Grayscale Mini is the way to go.

iShares and Fidelity funds are strong options too. Although they charge slightly higher fees, BlackRock and Fidelity stand behind these funds. I can see how they can grow to large sizes using their established customer bases. This alone will ensure their liquidity and popularity.

Conversely, we have VanEck and Bitwise. They are committed to giving back to the community. And, this could be an important differentiating factor for someone too.

What are your thoughts on the best Ethereum ETF? Let me know in the comments.