Ethereum Futures ETF: Everything you need to know
The first Ethereum Futures ETF will be launched in the US in October 2023. Called the VanEck Ethereum Strategy ETF (EFUT), it will be traded on the New York Stock Exchange (NYSE). Find out more about it!
The first Ethereum Futures ETF will be launched in the US on October 3, 2023. The product, called the VanEck Ethereum Strategy ETF (EFUT), will be traded on the New York Stock Exchange (NYSE). But what does this mean for the crypto market? How does this type of investment work? How can you benefit from it? Find out below!
What is an ETF?
ETF stands for "Exchange-Traded Fund." It is a type of investment fund that is traded directly on the stock exchange, much like a stock. They are an easy and accessible way to invest in a variety of assets, including stocks, bonds, commodities, and cryptocurrencies.
To understand how an ETF works, it's important to know the concept of an index. An index is a group of assets, such as stocks, bonds, or commodities, grouped together to measure the performance of a particular market or sector.
An ETF is designed to track the performance of a specific index. To do this, the fund purchases a basket of assets that correspond to the index it is tracking. For example, an ETF tracking the S&P 500 index would purchase shares of all 500 companies that make up the index.
When an investor buys a share of an ETF, they are buying a stake in that basket of assets. The price of the ETF's share will fluctuate in accordance with the value of the basket of assets.
Advantages of ETFs:
- Diversification: ETFs offer an easy way to invest in a variety of assets, which can help reduce portfolio risk.
- Accessibility: ETFs are traded on stock exchanges, making them easy to buy and sell.
- Low Cost: ETFs typically have lower management fees compared to other investment funds.
Disadvantages of ETFs:
- Volatility: ETFs can be volatile, meaning their prices can rise and fall rapidly.
- Risk: ETFs are subject to the same investment risks as the assets they track.
How do Futures Contracts Work?
A futures contract is an agreement between two parties to buy or sell an asset at a predetermined price on a future date. Futures contracts are used by investors to speculate on the future price of an asset or to hedge against market volatility. For example, an investor might buy a futures contract for oil to hedge against an increase in the price of oil.
Futures ETFs are a type of Exchange-Traded Fund that invests in futures contracts. They offer a way to invest in assets that are not directly traded on the stock exchange, such as cryptocurrencies themselves. For instance, a crypto futures ETF may invest in futures contracts for bitcoin or ethereum.
Futures contracts can add volatility to ETFs because prices can fluctuate significantly in a short period.
How will the Ethereum Futures ETF Work?
VanEck's Ethereum Futures ETF, known as the VanEck Ethereum Strategy ETF (EFUT), will invest in futures contracts for ether (ETH) traded on the Chicago Mercantile Exchange (CME). To manage its assets, the fund will use the CME CF Ether-USD Futures Index as its benchmark.
This is an index of ether futures contracts traded on the CME, rebalanced daily and using a weighted average of ether futures prices with maturities of 1, 2, 3, 6, and 12 months.
In this way, EFUT will invest in a basket of ether futures contracts that correspond to the CME CF Ether-USD Futures Index. The fund's management fee will be 0.45% per year.
It will be launched on October 3, 2023, on the New York Stock Exchange (NYSE).
How can investors invest in it?
Investors can invest in the first Ethereum Futures ETF by purchasing its shares directly on the NYSE. Simply look for the symbol "EFUT."
The launch of the Ethereum Futures ETF is a significant milestone for the cryptocurrency market. The product will facilitate traditional investors' access to ether, which could boost the cryptocurrency market's growth.
Keep reading DGFresh if you want to learn more about cryptocurrency trading and investing!