How spot ETFs are affecting Ethereum’s price and adoption in 2025
Ethereum (ETH) is the most valuable altcoin and the second most valuable cryptocurrency, coming after Bitcoin. This is due to its wide adoption and significant utility functions.
On January 10, 2024, the Securities and Exchange Commission (SEC) approved spot bitcoin ETFs.
This was a significant milestone for the cryptocurrency industry and the TradFi (Traditional Finance) world. This meant that investors with little knowledge about cryptocurrencies could now invest in Bitcoin through ETFs from major asset managers.
Following the approval of Bitcoin’s spot ETF, there was a price jump from $40,000 to $70,000. However, this took effect weeks after.
It has been many months since then, and Ethereum spot ETFs were also approved by the SEC in May 2024.
Let’s look at how this move has affected Ethereum’s price and adoption.
What are spot ETFs?
Spot ETFs, short for spot exchange-traded funds, are a financial innovation that allows investors to buy and sell shares of assets without actually purchasing the assets. This is because the fund provider buys the assets on behalf of the investors, allowing the investors to purchase stocks tied to the current asset value.
For instance, instead of physically buying gold, investors can buy a gold spot ETF from any financial institution and own investments that are tied to the real-time value of the metal.
This is the same for digital assets like Bitcoin and Ethereum. Thanks to the SEC, these cryptocurrencies can now be purchased from asset managers as Spot ETFs, which opens the doorway to investments from market players who see the potential of the crypto space but are not well-versed in its intricacies.
How do Ethereum Spot ETFs work?
Also known as spot Ether ETFs, Ethereum spot ETFs allow market stakeholders to invest in Ether without directly purchasing it from an exchange or setting up a cryptocurrency wallet. They buy funds that are based on the current value of Ethereum from well-established investment firms such as Grayscale, Franklin Templeton, 21Shares Vaneck, and others.
A spot Ether ETF is different from a futures Ether ETF because the former is linked to the actual real-time value of Ethereum while a futures ETF is based on the estimated worth of the cryptocurrency in the future. With spot Ether ETFs, the investor buys Ethereum for what it’s worth at that moment but with a futures Ether ETF, the investor trades based on speculations of what Ethereum’s price may be in the future.
Ethereum was chosen for spot ETF for several reasons, including:
- Increased demand from financial institutions to add Ethereum as an ETF
- Ethereum has been categorized as a digital commodity, not a security, providing investors with regulatory transparency.
- Large market cap, high trading volume, and abundant liquidity of the cryptocurrency
- Ethereum had already been approved for futures ETFs, the previous year
- The decentralized framework of ETH’s proof-of-stake network shows the minimal likelihood of market manipulation.
Impact on Ethereum’s Price and Adoption
Like Bitcoin, the approval of Ether ETFs also affected the price of Ethereum. The coin’s price, which was trading below $3,000 at the beginning of May, rapidly jumped to $3,800 and $3,900 during the same month, as the news of the SEC approval gained ground.
However, despite the approval, investor optimism, and increased accumulation, Ethereum struggled to achieve a price above the $4,000 mark. This was speculated to be because the SEC's approval did not include approval for actual trading, which can only be granted after individual ETF S-1 filing applications.
Nonetheless, the SEC approved the registrations to allow spot Ether ETFs to be tradable as digital assets from July 23, 2024. This was a significant milestone for the cryptocurrency; however, it did not significantly influence the price of Ethereum.
Here are some effects of spot Ether ETF approval on ETH:
- Asset managers and financial institutions were eager to accumulate significant chunks of Ethereum to make available as spot ETFs for investors.
- The mass institutional adoption earned Ethereum increased legitimacy as a financial asset.
- Experts opined that was the end of ETH’s 2 ½ year bear market.
- The Ethereum balance on exchanges dropped which indicated more long-term holdings.
- Wider adoption of Layer 2 solutions for faster transactions on the Ethereum chain.
- Increased use of ETH as collateral for DeFi platforms.
Challenges and Risks of Ethereum Spot ETFs
Market experts largely conclude that Ethereum spot ETFs are a plus for the cryptocurrency space. However, this scale of mass adoption by large asset managers is not without its risks and challenges:
- Market volatility: The influx of capital from large financial institutions can drive the price of Ethereum to go up. However, this subjects Ethereum to a fragile position as large buy-offs or sell-offs can cause prices to be highly unpredictable.
- Plausible market centralization: Ethereum is backed by a decentralized network but with massive accumulation by asset managers, this situation could be threatened.
- Lack of conviction by regular traders: Ethereum holders believe in the cryptocurrency's long-term potential, but this sentiment is not shared by regular traders who purchase spot Ether ETFs. These traders may treat the coin like regular stocks and sell it off when prices seem unfavorable.
- Regulatory instability: The position of Ethereum spot ETFs is not exactly clear whether they are a security or commodity. There is also a divide among US lawmakers; some are open to adoption and others are concerned about the risks.
Alternatives to Spot Ether ETFs
Investors can choose to invest in Ethereum in other ways apart from through spot Ether ETFs. Here are some of them:
- Buying directly: Those interested can acquire Ethereum from exchanges like Switchere. This eliminates the need to depend on institutional intermediaries and grants the owner total control over their Ethereum.
- ETF Ether Futures: Here, the investor can purchase a contract that speculates on Ethereum’s future price without actually owning Ethereum. This investment option is generally less risky than spot ETFs. These contracts are available for purchase on Binance, Bybit, and other similar platforms.
- Staking: Although this option requires that the investor already own some Ethereum, an investor can earn rewards by locking their Ethereum for a particular period to support the Ethereum network. This can be done directly on the Ethereum network.
Conclusion
The SEC’s approval of spot Ether ETF has made Ethereum one of the two digital assets available to be traded as spot funds, with the second being Bitcoin. This move has revolutionized traditional finance as more cryptocurrencies are expected to be added to the list with speculations indicating that Dogecoin may be next.
As recently as Thursday, February 13, 2025, the financial institution, 21Shares, proposed adding staking to its Ethereum ETFs. If approved, this could cause a fundamental change in how ETFs have been historically handled. This is because it would be the first ETF in the country to offer staking rewards and would be a means for asset owners to earn through the Ethereum network without directly buying the cryptocurrency.
To earn through staking on the Ethereum network, interested investors can purchase Ethereum from Switchere, then transfer the Ethereum to a staking platform to earn rewards.
Please be advised, that this article or any information on this site is not an investment advice, you shall act at your own risk and, if necessary, receive a professional advice before making any investment decisions
Roman Klochko