Kelly investment firm has filed an application to open a futures-backed Ethereum ETF that will be used to track underlying asset performance and provide exposure to the second-largest cryptocurrency on the market for retail and institutional investors.
Application details and fund type
According to the application, the SEC and the company acknowledge that Ether and Ether futures contracts are a new asset class and remain under a high risk of unexpected market volatility that might lead to the rapid decline of the asset's price.
The fund will warn all of its investors that they could lose their initial investment up to 90%, which was the case previously in 2018 when Ether's price dropped by more than 90% in a short period of time.
The fund will track futures contracts in a similar way to ProShares' Bitcoin ETF, which works on the same principle. The fund will use Ether futures that are being traded on commodity exchanges that are registered by the CFTC. Each futures contract tracked by the fund will be cash-settled, which means that after expiry, contract holders receive the cash value of the asset.
How it might affect the market
While it is not completely clear if the SEC is going to approve or disapprove a product tied to regulated futures contracts, Ethereum might receive a strong inflow volume just like its predecessor that brings more than $1 billion to the cryptocurrency market on the first day after listing on the market.
The issue with futures-backed funds still remains the same: by exposing yourself to the futures-backed fund investors are falling under the risks of paying additional roll costs that affect investors' profit directly. According to the latest calculations, the futures-backed Bitcoin fund underperforms by up to 20% annually compared to the direct exposure to the asset via centralized or decentralized exchanges.