• A $1.4 billion investment firm has applied for an Ethereum ETF

  • Kelly Investment Firm has filed an application to launch a futures-backed Ethereum ETF that will track underlying asset performance and provide retail and institutional investors with exposure to the market’s second-largest cryptocurrency.

    Details about the application and the type of fund

    According to the application, the SEC and the company recognize that Ether and Ether futures contracts are a new asset class with a high risk of unexpected market volatility, which could result in a rapid decline in the asset’s price.

    The fund will warn all of its investors that they could lose up to 90% of their initial investment, as happened 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 the same manner as ProShares’ Bitcoin ETF, which operates on the same principle. The fund will use Ether futures contracts traded on CFTC-registered commodity exchanges. Each futures contract tracked by the fund will be cash-settled, which means that contract holders will receive the asset’s cash value after it expires.

    What impact it may have on the market

    While it is unclear whether the SEC will approve or reject a product linked to regulated futures contracts, Ethereum may see a large inflow volume, similar to its predecessor, which brought more than $1 billion to the cryptocurrency market on the first day of trading.

    The issue with futures-backed funds remains the same: by investing in futures-backed funds, investors risk incurring additional roll costs, which directly affect their profit. According to the most recent calculations, the futures-backed Bitcoin fund underperforms direct exposure to the asset via centralized or decentralized exchanges by up to 20% per year.

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