A Second Application for Ethereum ETF by WisdomTree Is Evidence of Increasing Interest from Mainstream Players

The asset-managing firm continues to enter the crypto landscape, indicating the rising interest in cryptocurrency from established finance companies.

By
Chung Yee
on
May 28, 2021
Category:
Blockchain News

WisdomTree Files For Ethereum Fund

WisdomTree has followed the footsteps of VanEck, as the platform filed for an Ethereum Exchange-Traded-Fund (ETF) in the United States. This will be the second application for the Ethereum Fund after VanEck took the lead by making an application to the Securities and Exchange Commission (SEC) on May 8, 2021.  


What Led to the ETF Application?

WisdomTree was launched in June, 2006 with a big dream and a simple philosophy, to provide a better way to invest. They called it the ‘Modern Alpha’. The asset management firm has an impressive list of ETFs, covering both the domestic and international markets. In March, 2021, the firm filed for a Bitcoin ETF that is currently under review. To date, no ETF for a cryptocurrency has been approved, but their application result could help set a precedent for future decisions. 


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WisdomTree recognizes the need to plug the investment gap and spur adoption, especially in a volatile market setting.  Many traditional investors are not familiar with cryptocurrency, but still recognize the potential it offers compared to archaic centralized operation. However, onboarding the crypto journey into traditional finance may be daunting to the majority. The risk of managing one’s own wallet, private keys, and other risks commonly associated with custody and safekeeping are some of the main concerns that users bring up as contributing to adoption hesitance.

However, other countries like Canada and Brazil have already taken the bold step of allowing crypto ETF. The regulators may be cautious as an ETF allows for broad-based participation by the public, and the fear of market volatility whilst balancing a fairly new asset class are the major concerns that the regulators have to weigh in their decision-making. 


What is an ETF?

An ETF, short for an Exchange-Traded Fund, is a financial product. The general public, being more accustomed to traditional methods of purchasing stocks, can participate in crypto assets through an ETF. ETFs are traded like stocks, tracking the crypto asset’s price on exchanges, offering a secure alternative to other methods with trust mechanisms like Grayscale. The solution provided through Grayscale is better suited for wealthy investors over smaller-number traders, as investors must be ‘accredited investors’, meaning large institutional players or wealthy individuals. The average investor would not be able to participate in these markets, but an ETF would bridge this gap. 

The average investor can purchase an interest in the crypto asset through the traditional brokerage account. This can all be done without the technical barriers that have prevented many from participating in the past. The traditional entry in owning crypto assets has been through mining, peer to peer trading and purchasing through crypto exchanges. 


ETF is the Gateway to Further Recognition 

Whilst the regulators often cite volatility as a concern, this concern is akin to the chicken and egg metaphor. An asset class in order to gain stability needs liquidity. The various entries to enable crypto ownership are paramount to address this. Unless the regulators are willing to loosen the noose that they have tightened around the necks of crypto assets and allow for broad based participation, the price volatility will always be present. 

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An ETF can be a solution to the regulators in promoting better investor protection. In the absence of an ETF, investors risk being exposed to scams and dubious crypto schemes. If there is a safer platform that is well-regulated, a regular, unsophisticated investor can participate without the fear of being ripped off. The SEC can play a pivotal role in this evolution by recognizing that this is a growing asset class, and improved asset protection will inevitably tag along with such recognition. 


WisdomTree: Barometer of Public Sentiment?

The decision made by WisdomTree and VanEck to participate in the crypto market through an ETF is not fueled by its executive’s bias towards crypto. Just like Paypal, Visa or Mastercard, in order to remain relevant and to run its business, it has to recognize the needs and wants of its users. Investors are demanding mainstream adoption of crypto, and applying for an ETF is one way that companies can enter the landscape and serve their clientele.  

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Chung Yee

Chung Yee has a legal background and has been involved in research works for the legal and compliance industry. Writing is his passion, centered on topics such as the blockchain and finance.

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