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The launch of ether exchange-traded funds (ETFs) last July has not seen the level of enthusiasm that many anticipated, though there is potential for recovery as regulatory concerns are addressed, according to Robert Mitchnick, who leads digital assets at BlackRock.
During his speech at the Digital Asset Summit in New York City, Mitchnick remarked on the prevailing perception that ether ETFs have underperformed in comparison to the rapid expansion of bitcoin-tracking funds. He perceives this sentiment as somewhat misguided but recognizes that the lack of staking yield is a significant factor limiting their appeal.
Mitchnick detailed, “There’s clearly a next phase in the development of ether ETFs. While ETFs have proven to be effective vehicles for bitcoin investments across various investor demographics, they currently fall short for ETH without staking capabilities. The absence of a staking yield means that potential investment returns are adversely affected, as none of the ether ETFs launched initially included this feature.”
Staking offers investors a method to generate passive income by temporarily locking up their cryptocurrency in the network. This mechanism enhances the utility of held assets, especially for those not inclined to sell in the short term.
However, Mitchnick cautions that resolving these issues isn’t straightforward. “It’s a complex challenge,” he noted. “It’s not merely a matter of a new administration giving the green light and everything falling into place. There are intricate problems that must be navigated. Should these challenges be addressed, we could see a significant increase in engagement with ether ETFs.”
The U.S. Securities and Exchange Commission (SEC) has historically considered certain staking services as potential unregistered securities under its Howey Test. This test determines whether an asset qualifies as an investment contract and thus counts as a security. Nonetheless, a newly appointed, more crypto-friendly SEC is actively seeking to rectify prior complications in the industry. This effort includes a roundtable series led by its new crypto task force, set to begin Friday, aimed at clarifying the security status of digital assets.
Moreover, ether has faced considerable declines recently. The cryptocurrency has experienced a drop of over 40% year-to-date, grappling with mixed narratives, diminished revenues following its latest technical upgrade, and rising competition, notably from Solana. In fact, Standard Chartered recently lowered its price target for ether by more than 50%.
Despite the negative sentiment surrounding ether, Mitchnick believes it is exaggerated. He explained, “At a basic level, ETH represents a significant technological innovation. However, as you delve deeper into the complexities, it becomes a broader issue of blockchain adoption and innovation, which requires more extensive explanation to clients.”
He highlighted three key use cases that resonate with their client base: the investment thesis partially hinges on tokenization, the uptake of stablecoins, and the development of decentralized finance. “Educating clients on these concepts is essential, and while we’ve made progress, there remains work ahead,” he added.
BlackRock has issued the iShares Ethereum Trust ETF and has also developed a tokenized money market fund named BUIDL, which launched on Ethereum a year ago and has since reached multiple other networks, including Aptos and Polygon.
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