- ARK Invest won’t issue a spot Ethereum ETF alongside 21Shares.
- The two firms’ Bitcoin ETF is a top performer.
- ARK could be hesitant because of the price tag — or waiting for the SEC to approve staking.
Almost a dozen firms are competing to launch spot Ethereum exchange-traded funds. But crypto heavyweight ARK Invest isn’t one of them.
“ARK believes in its transformative potential and the long-term value of the Ethereum blockchain, but, at this time, ARK will not be moving forward with an Ethereum ETF,” an ARK spokesperson told DL News.
ARK Invest issued a spot Bitcoin ETF in January alongside 21Shares, a firm that specialises in launching crypto investment products. And the two firms seemed ready for another round, filing for an Ethereum ETF jointly.
No surprise there: The massive success of the Bitcoin ETFs suggests Ethereum ETFs could quickly accumulate billions of dollars in assets with even a fraction of the demand.
But a recent filing showed that ARK has dropped out of the partnership and that 21Shares will pursue a spot Ethereum ETF on its own.
Expensive products
There are a couple reasons why ARK may have changed its mind.
For one, launching an ETF is expensive — and in the case of the spot Bitcoin and Ethereum ETFs, the fees are so low that issuers don’t always make a profit.
“Although Bitcoin ETFs have done well in terms of assets, the issuers face profitability challenges due to fee compression and the relatively high costs of the crypto-related fund service providers,” Will Cai, managing director of indices of Kaiko, a crypto data and research firm, told DL News.
ARK and 21Shares’ Bitcoin ETF is one of the most successful funds out of the 10 that launched in January. Coming in third behind BlackRock and Fidelity, it has vacuumed up almost $3.5 billion in assets in five months — an impressive performance by normal ETF standards.
Even so, with fees at 0.21%, it may be hard for ARK and 21Shares to break even on the product. They still must pay their Bitcoin custodian — in this case, Coinbase — as well as administrative fees, their cash custodian, and other things like transfer agents.
“This could well put pressure on the terms of the partnership when there isn’t much profit to go around,” Cai said.
Waiting for staking
There’s also the possibility that ARK is waiting for the Securities and Exchange Commission to greenlight spot Ethereum ETFs that also provide staking services.
“We will continue evaluating efficient ways to provide our investors with exposure to this innovative technology in a way that unlocks its full benefits,” the ARK spokesperson told DL News.
In their current design, the ETFs will provide pure exposure only to Ether’s price, without the roughly 3% yield that investors can earn by staking their Ether.
In other words, not only will investors have to pay a fee to ETF issuers for the exposure to Ether, they will be missing out on opportunities to grow their holdings in Ether terms.
“There’s one massive idiosyncratic factor with ETH that will affect demand and that’s staking,” Adam Morgan McCarthy, a Kaiko analyst, told DL News.
“Even paying 0.20% fees without the staking element seems like a nonstarter to me,” he added.
Tom Carreras is a markets correspondent at DL News. Got a tip about ARK or Ethereum ETFs? Reach out at tcarreras@dlnews.com
