Bitcoin
Why ARK Invest Dropped Out of Billion-Dollar Ethereum ETF Race – DL News
- ARK Invest will not issue a spot Ethereum ETF alongside 21Shares.
- The Bitcoin ETF of the two companies is the best performer.
- ARK may be hesitant because of the price – or waiting for the SEC to approve the bet.
Nearly a dozen companies are competing to launch spot Ethereum exchange-traded funds. But crypto heavyweight ARK Invest is not one of them.
“ARK believes in the transformative potential and long-term value of the Ethereum blockchain, but at this time, ARK will not move forward with an Ethereum ETF,” said an ARK spokesperson. DL News.
ARK Invest issued a spot Bitcoin ETF in January together with 21Shares, a company specializing in launching crypto investment products. And the two companies appeared ready for another round, jointly filing for an Ethereum ETF.
No surprise: the huge success of Bitcoin ETFs suggests that Ethereum ETFs could quickly accumulate billions of dollars in assets with even a fraction of the demand.
But a recent document showed that ARK has backed out of the partnership and that 21Shares will pursue a spot Ethereum ETF on its own.
Expensive products
There are a few reasons why ARK may have changed its mind.
For one thing, launching an ETF is expensive — and in the case of spot Bitcoin and Ethereum ETFs, the fees are so low that issuers don’t always make a profit.
“While Bitcoin ETFs have performed well in terms of assets, issuers face profitability challenges due to fee compression and the relatively high costs of crypto-related fund service providers,” Will Cai, Managing Director of Indexes of Kaiko, a crypto data and research firm, said DL News.
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ARK and 21Shares’ Bitcoin ETF is one of the most successful funds among the 10 funds launched in January. Coming in third place behind BlackRock and Fidelity, it accumulated nearly $3.5 billion in assets in five months – an impressive performance by normal ETF standards.
Still, with fees of 0.21%, it may be difficult for ARK and 21Shares to break even on the product. They must still pay the Bitcoin custodian – in this case, Coinbase – as well as administrative fees, the money custodian, and other things like transfer agents.
“This could put pressure on the terms of the partnership when there is not much profit available,” Cai said.
Waiting to bet
There is also a possibility that ARK is waiting for the Securities and Exchange Commission to give the green light to identify Ethereum ETFs that also provide staking services.
“We will continue to evaluate efficient ways to provide our investors exposure to this innovative technology in a way that unlocks its full benefits,” said the ARK spokesperson. DL News.
In their current design, ETFs will provide pure exposure to just the price of Ether, without the ~3% yield that investors can get by staking their Ether.
In other words, not only will investors have to pay a fee to ETF issuers for exposure to Ether, they will also miss opportunities to increase their Ether holdings.
“There is a huge idiosyncratic factor with ETH that will affect demand and that is the gamble,” said Adam Morgan McCarthy, analyst at Kaiko. DL News.
“Even paying 0.20% fees without the staking element seems like a deal breaker to me,” he added.
Tom Carreras is markets correspondent for DL News. Do you have any tips on ARK or Ethereum ETFs? Contact tcarreras@dlnews.com