The Ethereum ETFs will start trading on Tuesday, and here's what it means for the Ethereum blockchain.

Ethereum blockchain technology has a wider use case than Bitcoin, and crypto enthusiasts are hopeful that the spot ether exchange traded funds will begin trading on Tuesday, broadening the investor base for Ethereum.

These ETFs will directly invest in ether, the cryptocurrency used in the Ethereum network, and are the first to track spot ether.

Spot ether ETF applications

The Grayscale Ethereum Mini Trust (ETH), Grayscale Ethereum Trust (ETHE), Bitwise Ethereum (ETHW), VanEck Ethereum (ETHV), 21Shares Core Ethereum (CETH), Invesco Galaxy Ethereum (QETH), Fidelity Ethereum (FETH), Franklin Ethereum (EZET), and iShares Ethereum Trust (ETHA) are all types of Ethereum-based investment products.

Most Bitcoin ETFs launched in January are currently waiving fees, including some for as long as a year.

Bitcoin ETF have been a hit. Will ether ETFs be the same?

Since their debut, spot bitcoin ETFs have been successful, with net flows reaching $17 billion year to date.

For a new asset class, that is a big hit.

Bitcoin's total assets of $1.3 trillion are three times greater than ether's $414 billion, which may limit the initial appeal of ether ETFs.

Bitcoin prices increased before the launch of spot bitcoin ETFs, while Ether experienced a 50% increase in 2024, with most of the gain occurring in the first three months of the year.

For Ethereum enthusiasts, a spot ether ETF is an excellent tool to educate the public about Ethereum's diverse use cases, which surpass anything Bitcoin can provide.

Ethereum is more like picks and shovels, according to Ben Johnson, Morningstar's head of client solutions and an ETF research veteran, who pointed out that bitcoin is often marketed as digital gold.

"The former is finite and could be used as a store of value, while the latter is not finite and is being utilized to construct real-world applications," he stated.

What the Ethereum platform does

Bitcoin has not convinced many investors due to its limited use case as solely a digital currency. However, Ethereum's platform stands out.

While Bitcoin and Ethereum both employ blockchain technology as a decentralized, unalterable record of transaction histories, their objectives differ significantly.

Bitcoin and Ethereum are both digital currencies that use blockchain technology, but Ethereum's blockchain has a broader range of purposes beyond just being a digital currency. The cryptocurrency used in the Ethereum network is called Ether, but in practice, the terms Ethereum and ether are often used interchangeably.

Smart contracts are self-executing programs built on the Ethereum platform that enforce pre-existing contracts or agreements. These programs can be as simple as "If I do this, you do that." They automatically execute on the Ethereum network and produce the same result each time they are executed. They have numerous applications.

Decentralized finance, or "DeFi," refers to the use of financial services on the blockchain. In theory, users can perform a wide range of banking services, including sending, lending, borrowing, opening savings accounts, trading stocks and derivatives, and even real estate transactions, all through the use of decentralized apps.

The use case extends beyond financial services. Games can be played, supply chains can be tracked, and stock trades can be settled using it.

Stablecoins are another application for Ethereum. These cryptocurrencies have a value that is linked to another asset, typically the dollar. Since cryptocurrencies like Bitcoin and Ether are unstable, many DeFi applications use stablecoins for lending, borrowing, and trading.

A transaction network that is based on a promise could potentially be a more affordable and efficient way to conduct business.

Does this open the floodgates for more crypto ETFs?

Will the latest development in crypto ETFs lead to an influx of more ETFs or will the U.S. Securities and Exchange Commission be able to prevent it?

To be approved for other crypto ETFs, applicants must demonstrate that the underlying market is not manipulated, a vital condition for the approval of these funds.

But a lot may depend on the political climate.

Currently, the SEC only requires a regulated futures market to trade alongside bitcoin and ether, meaning it would take time to establish futures markets for other crypto products.

"If the regime in Washington changes, the situation could change, according to Matt Hougan, chief investment officer of Bitwise."

Johnson at Morningstar predicts that the new ETH ETFs will experience a lot of trading. He believes that the addition of options on these ETFs will accelerate this trend, making the crypto market even more dynamic. In his view, these ETFs represent a significant expansion of the crypto market.

Is Ethereum essentially a tech play?

The primary focus of Ethereum is currently to sell it as a new transaction platform, and Ethereum supporters have a strong argument that it is a technology investment at its core.

According to Hunter Horsley, CEO of Bitwise, who spoke on Biz Focus Hub last night, many investors see bitcoin as a digital form of gold, a store of value, while Ethereum is viewed more as a technology-focused investment.

On ETF Edge Tuesday, July 23 at 1:10 p.m., Eastern, Jan van Eck, CEO of VanEck; Morningstar's Ben Johnson; and David Mann, ETF product and capital markets at Franklin Templeton, will be featured.