Ethereum vs. Ethereum ETFs: 5 Key Differences
Here are the main differences between Ethereum and its related ETF products:
#1 Ownership
The main difference between Ethereum and the related ETF products lies in the type of asset one holds. Ethereum is a cryptocurrency hosted on a decentralized network consisting of computers dispersed all over the world (nodes). The cryptocurrency is held in digital wallets and can be transferred to other crypto addresses or traded via centralized and decentralized exchanges.
Ethereum holders can also stake it – a form of passive income – through one of multiple types of staking platforms, including liquid staking protocols or restaking protocols.
With ETFs, investors own shares of the funds backed by Ethereum. The share price mirrors the performance of the underlying cryptocurrency. ETF investors cannot transfer their shares to digital wallets, redeem their shares for crypto, or stake them. Instead, the ETFs can be sold or redeemed for cash.
#2 Regulatory Oversight
The Ethereum blockchain represents a decentralized network that has no governing authority, with consensus being achieved collectively. After years of confusion, the SEC is treating Ethereum as a commodity, meaning that it falls under the supervision of the Commodity Futures Trading Commission (CFTC).
Ethereum ETFs are securities and thus regulated by the SEC. They are issued by companies and registered with the securities watchdog.
#3 Liquidity and Accessibility
Ethereum can be traded on crypto exchanges like Coinbase or purchased with other crypto assets through wallets like tastycrypto. Buying ETH directly and storing it safely can be more complicated for non-tech-savvy traditional investors.
Elsewhere, Ethereum ETFs are more liquid, being available on traditional stock exchanges like Nasdaq, NYSE Arca, or Cboe’s BZX Exchange. ETF shares can be traded through brokerage accounts like tastytrade, Fidelity, or Robinhood, making them a great choice for traditional investors.
Also, while you can trade Ethereum at any time, ETH ETFs are available during trading days between 9:30 AM to 4:00 PM ET.
#4 Management Structure & Fees
ETH holders are responsible for managing their investments, which includes purchasing crypto through a reputable exchange and storing it in a secure wallet.
In contrast, with Ethereum ETFs, the issuing company handles all the behind-the-scenes work, including storing the digital asset safely in a cold wallet. This comfort comes at a price, as ETF issuers charge a management fee that can range from 0.15% to as high as 2.5%. Grayscale’s ETHE fund, for example, has a fee of 2.5%, which led to outflows of $2 billion in the first days due to the high management cost.
#5 Taxes
In the US, operations with both Ethereum and Ethereum ETFs can be taxable events. Investors must track their capital gains and losses in USD terms on their own, with each Ethereum or ETF transaction being treated as a taxable event.
When holding Ethereum ETF shares for less than a year before selling, the capital gains are taxed at ordinary income tax rates, ranging from 10% to 37%. Holding the ETF shares for more than a year before selling results in long-term capital gains, which are taxed at lower rates of 0%, 15%, or 20%.
