Compare ETH ETF applicants: BlackRock vs Fidelity vs Grayscale

Overview of Ethereum ETF Applications

The race to bring the first Ethereum Exchange-Traded Fund (ETF) to market has intensified, with major financial institutions like BlackRock, Fidelity, and Grayscale leading the charge. Each company has filed proposals with the U.S. Securities and Exchange Commission (SEC), aiming to offer investors a regulated, accessible way to gain exposure to ETH without directly holding the cryptocurrency.

These ETFs would track the price of Ethereum and trade on traditional stock exchanges, offering institutional and retail investors an alternative to direct crypto ownership. While the SEC has yet to approve any spot Ethereum ETF, it has shown some openness following its approval of Bitcoin futures ETFs in 2024.

BlackRock’s ETH ETF Proposal

BlackRock, the world’s largest asset manager, entered the crypto ETF race by filing for an Ethereum spot ETF in early 2024. Known for its meticulous regulatory strategy, BlackRock has leveraged its experience from its successful Bitcoin ETF application to build a robust case for Ethereum.

• The fund will be structured as a grantor trust, similar to traditional commodity ETFs.
• It plans to hold physical ETH directly, ensuring full transparency and backing for shares issued.
• BlackRock has engaged in extensive dialogue with the SEC, emphasizing investor protections and market integrity.

BlackRock's proposal includes detailed custodial arrangements, using its own sub-custodian network to store ETH securely. The firm has also outlined mechanisms for creation and redemption processes that mirror those used in gold ETFs, minimizing arbitrage opportunities and maintaining price stability.

Fidelity’s Ethereum ETF Filing

Fidelity Digital Assets, a division of Fidelity Investments, is no stranger to cryptocurrency. Having already launched a Bitcoin ETF and provided institutional custody services, Fidelity aims to extend its digital asset offerings through an Ethereum ETF.

• Fidelity’s ETF will also be a physically-backed product, storing ETH in cold storage managed by its proprietary infrastructure.
• The firm emphasizes security and scalability, leveraging its existing tech stack developed for its Bitcoin ETF.
• Regulatory engagement remains a top priority, with Fidelity positioning itself as a trusted intermediary between regulators and the crypto market.

Fidelity’s filing includes provisions for daily transparency reports, showing real-time holdings and net asset value (NAV) calculations. This level of detail is intended to reassure both regulators and investors about the integrity of the underlying assets.

Grayscale’s Role in the ETH ETF Race

Grayscale Investments has been a dominant player in crypto investment products, particularly with its Grayscale Ethereum Trust (ETHE). However, the trust trades at a premium and lacks the efficiency of an ETF structure.

• Grayscale has formally requested to convert its ETHE product into an ETF, bypassing the need for a new listing process.
• This conversion would allow immediate access to ETF mechanics such as in-kind redemptions, which help keep the fund’s price aligned with Ethereum’s spot value.
• The firm argues that its existing trust structure meets all SEC requirements and should be eligible for conversion.

Grayscale’s application highlights its compliance history and investor base, which includes both institutional and accredited investors. Its legal team is actively challenging the SEC over the denial of previous conversion requests, setting up potential precedent-setting rulings.

Comparing Custody and Security Measures

All three firms prioritize secure custody solutions, but each approaches it differently:

• BlackRock uses third-party custodians within its trusted network, including regulated entities experienced in handling commodities.
• Fidelity relies on its internal custody platform, designed specifically for cryptocurrencies and tested during the launch of its Bitcoin ETF.
• Grayscale currently depends on third-party custodians under its parent company, Digital Currency Group, but plans to integrate more directly if converted into an ETF.

Each applicant must demonstrate how they safeguard private keys, prevent theft or loss, and ensure auditability. All have submitted documentation detailing multi-signature wallets, air-gapped storage, and regular audits conducted by independent firms.

Regulatory Strategy and Engagement

Regulatory engagement is crucial for securing SEC approval. Each firm has tailored its approach:

• BlackRock is leveraging its brand reputation and long-standing relationship with the SEC to push for clarity and alignment with traditional ETF frameworks.
• Fidelity is focusing on its proven track record in managing complex financial instruments and highlighting its risk mitigation strategies.
• Grayscale is taking a more aggressive legal stance, preparing for litigation if necessary to force the SEC’s hand based on precedent set by Bitcoin ETF approvals.

Each firm’s submission includes detailed legal memos, citing past SEC decisions and proposing how Ethereum fits within existing regulatory constructs. None of the applicants are proposing synthetic or futures-based structures, instead advocating for transparent, physically-backed models.

FAQs

Q: Can I invest in these Ethereum ETFs before they’re approved?A: No, you cannot invest in these ETFs until they receive final approval from the SEC and begin trading on public exchanges. Until then, investors may consider alternatives like Ethereum trusts or crypto exchange-traded notes (ETNs).

Q: Will these ETFs support staking or yield generation?A: Based on current filings, none of the proposed ETFs plan to engage in staking or yield-bearing activities, focusing solely on tracking Ethereum’s price movements.

Q: How do these ETFs handle Ethereum forks or airdrops?A: Filings indicate that any forked coins or airdropped tokens will either be sold or distributed to shareholders, depending on the issuer’s policy and regulatory guidance at the time.

Q: Are there differences in expense ratios among the applicants?A: Yes, preliminary disclosures show variations in management fees, though exact figures remain speculative until final prospectuses are released. BlackRock and Fidelity are expected to offer competitive fee structures to attract institutional inflows.