Why ARK Invest withdrew from the billion-dollar competition for Ethereum ETFs

  • In addition to 21Shares, ARK Invest will not create a spot Ethereum ETF.
  • The Bitcoin ETF from both companies has done very well.
  • Perhaps ARK is wary because to the cost, or they are awaiting SEC approval before moving forward with staking.

There is competition among nearly a dozen companies to introduce spot Ethereum exchange-traded funds. ARK Invest, a major player in cryptocurrency, isn’t one of them.

ARK believes in its revolutionary potential and the long-term worth of the Ethereum blockchain, but, at this time, ARK will not be pushing forward with an Ethereum ETF, an ARK spokeswoman said.

In January, ARK Invest and 21Shares, a company that specializes in introducing cryptocurrency investment products, released a spot Bitcoin ETF. Together, the two companies applied for an Ethereum ETF, indicating that they were prepared for a second round.

It should come as no surprise that Ethereum ETFs might amass billions of dollars in assets with even a small portion of the demand given the tremendous success of Bitcoin ETFs.

However, according to a recent filing, 21Shares will pursue a spot Ethereum ETF alone, and ARK has withdrawn from the collaboration.

Pricey goods

There are a few possible explanations for ARK’s possible change of heart.

The first is that the cost of starting an exchange-traded fund (ETF) is high; also, the fees for the spot Bitcoin and Ethereum ETFs are so low that issuers aren’t always profitable.

Will Cai, managing director of indices at Kaiko, a crypto data and research organization, told DL News that while Bitcoin ETFs have performed well in terms of assets, the issuers are facing profitability issues because of fee compression and the comparatively high costs of the crypto-related fund service providers.

Out of the 10 funds that were introduced in January, the Bitcoin ETF from ARK and 21Shares is one of the most popular ones. It has gathered about $3.5 billion in assets in five months, placing it third after BlackRock and Fidelity – an extraordinary achievement by typical ETF standards.

Nevertheless, it might be challenging for ARK and 21Shares to break even on the product with fees at 0.21%. They still have to pay their cash custodian, transfer agents, administrative fees, and their Bitcoin custodian, which in this case is Coinbase.

According to Cai, this might put pressure on the partnership’s terms when there isn’t much profit to share.

Awaiting the staking process

It’s also possible that ARK is holding off until the Securities and Exchange Commission approves Ethereum ETFs that double as staking vehicles.

The ARK representative said, “We will keep looking at effective ways to expose our investors to this cutting-edge technology in a way that maximizes its benefits.”

Without the approximately 3% income that investors can receive by staking their Ether, the ETFs as they are currently designed will only offer pure exposure to the price of Ether.

Put another way, investors will lose out on chances to increase their Ether holdings in addition to having to pay a charge to ETF producers for the exposure to Ether.

Staking is a significant unique feature of ETH that will influence demand. Without the staking component, even paying 0.20% in fees sounds like a nonstarter.

Disclaimer : This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.

Author: Lalit Mohan

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