In yet another sign that companies are eager to turn digital currencies into proper investment vehicles, a newly formed company called EtherIndex LLC filed last Friday with the Securities and Exchange Commission to launch an exchange-traded fund based on ether, the cryptocurrency that powers the Ethereum network.
The move comes on the heels of the SEC opening a proposal for a Bitcoin ETF by Cameron and Tyler Winklevoss of Gemini for public comment, and a filing last Tuesday by SolidX to launch a Bitcoin ETF.
Ether is a young digital currency, similar to Bitcoin, launched not quite a year ago. Its market cap is a fraction that of Bitcoin’s — for the last month, it’s both exceeded and dipped below the $1 billion range, while Bitcoin’s market cap is has been more stable around $10 billion.
The filing is remarkably early for such a young cryptocurrency, especially one that has been beset by problems and volatility in the last month.
However, the recent activity around cryptocurrency ETFs indicates that many recognize the demand for legitimate digital currency investment vehicles. Investors are extremely limited in ways to get Bitcoin exposure in their portfolios. The Bitcoin Investment Trust (GBTC) by Grayscale Investments is one such vehicle, and it trades at a significant premium to Bitcoin itself. Intended to be priced at one-tenth the cost of one Bitcoin, it trades on the open market at near double that.
There is currently no way for investors to get ether exposure in their portfolios.
Despite investor interest, given how immature ether is as a cryptocurrency, it seems unlikely the SEC would be comfortable using it as an underlying asset in an investment vehicle any time soon.
Additionally, the S-1 filing appears to be hastily put together -- another reason eager ether investors may be in for a wait.
EtherIndex itself was only founded a month ago, and its filing is mostly incomplete, acting more as a shell or placeholder. It does not name an exchange, ticker, trustee or administrator. (Gemini’s proposed Winklevoss Bitcoin Trust has selected BATS, and SolidX intends to list on the New York Stock Exchange.)
The lack of other infrastructure players could reflect the thin relationships that the cofounders have. Chief executive officer, Gregory DiPrisco, whose LinkedIn profile indicates he is a futures trader at energy trading firm Axiom Markets, does not seem to have other experience with digital currencies. Cofounder and chief financial officer Joseph Quintillian, whose
DiPrisco and Quintillian did not respond to calls and messages for comment.
Given how nascent ether is, the recent troubles its had, and EtherIndex’s lack of a track record, it could be a while before the SEC is comfortable with creating a proper investment vehicle backed by ether, especially one created by an inexperienced team. The first gold ETFs, GLD and IAU, launched about a dozen years ago, were brought to market by ETF companies Spider and iShares.
Ether is currently in a shaky state, with the Ethereum community attempting to emerge from a crisis sparked by a crowdfunding project called the Decentralized Autonomous Organization (the DAO), which raised more than $150 million in ether — the largest crowdfunding project in history.
However, the project turned sour when a nefarious actor or actors exploited a loophole in the project to steal about $50 million of ether. Since then, confidence in the currency has been shaken, and the value plummeted from about $20 per ether to $10 and is now trading at about $11.
Still, financial institutions are building up infrastructure to bring digital currencies into traditional investing. One of the largest derivatives exchanges,
“[The filing by EtherIndex] is confirmation that many people are seeing cryptocurrencies as a new asset class and they’re trying to securitize them and offer more investors exposure,” says Chris Burniske, blockchain analyst and products lead at ARK. “On the flip side of things, these are long processes, and the SEC needs to get comfortable with these things. Just because there’s a filing in the water doesn’t mean that a public listing is impending.”
