What are Ether futures ETFs, and how do they work?

How Ether futures ETFs work

Investors can place bets on Ethereum’s potential price increases or decreases by purchasing shares in Ether futures ETFs, without physically owning the cryptocurrency itself.

Instead of holding actual Ethereum assets directly, Ether futures ETFs enable investors to put their money into futures agreements. These agreements represent promises to buy or sell Ethereum at a set price on a specified future date. By investing in these contracts via the ETF, investors can gain exposure to Ethereum’s price changes without the need to manage wallets or interact with cryptocurrency exchanges. The ETF collects funds from its investors and uses them to acquire the futures contracts.

If an Ether futures ETF holds a agreement to buy 100 Ethers at a cost of $4,000 per Ethereum unit in three months, the ETF will earn a profit and its share value will increase if the price of Ethereum reaches $4,500 by the expiration date. Conversely, the ETF will incur a loss when the price of Ethereum drops to $3,500.

An essential thing to keep in mind is that Ether futures ETFs regularly update their contracts to maintain their Ether exposure. They buy new contracts with upcoming expiration dates and sell those close to expiring. Consequently, the ETF’s price and the actual Ethereum spot price might have a slight disparity due to this procedure.

How to invest in Ether futures ETFs

To invest in an Ether futures ETF, select a brokerage, find the desired ETF, such as the VanEck Ethereum Strategy ETF, research it thoroughly and place an order to complete the purchase.

The VanEck Ethereum Strategy ETF provides a simplified way for investing in Ether futures through an ETF. This particular ETF offers regulated access to Ether futures, reducing the complexities of direct ownership. Additionally, its C-Corporation structure improves tax efficiency for investors.

Select a brokerage

To begin, you need to sign up for an account on a trusted brokerage site, such as Fidelity, Robinhood, Vanguard, or Charles Schwab, which facilitates the purchasing and selling of Exchange-Traded Funds (ETFs).

Find the ETF

You can search for the VanEck Ethereum Investment Trust or any comparable Ether futures ETF using its ticker symbol as a guide. The ticker symbol for the VanEck trust is EFUT.

Research about the ETF

Before buying a selected ETF, make sure to thoroughly research it. Review the fact sheet and prospectus, along with the ETF’s underlying assets, costs, and risks associated with futures contracts.

Place an order

You can acquire the required amount of Ether futures ETF shares through a buy order in much the same manner as buying regular stocks. To finalize the transaction, indicate your preferred order type – be it a limit or market order.

Keep an eye on your investment

After making a purchase, keep an eye on the ETF’s performance; be aware that Ether futures ETFs come with the unpredictability of cryptocurrencies, which can impact their share price.

Why a C-Corp may mean tax benefits for Ether futures ETF investors?

Long-term investors can enjoy potential tax advantages by investing in ETFs that are structured as C-Corps and trade Ether futures, rather than opting for conventional Regulated Investment Companies (RICs).

C-corporations, also known as traditional corporations, face double taxation when they pay corporate taxes on profits and then distribute dividends to shareholders, who are taxed again. However, this setup allows for flexible profit distribution and the possibility of offsetting losses with gains. In comparison, RICs (Real Investment Trusts) pass through their taxes to their shareholders, meaning they don’t pay corporate-level taxes on profits distributed. Instead, investors pay the taxes on their income from RICs.

C-Corps such as VanEck Ethereum Strategy ETF have the ability to carry forward their losses to offset future profits, potentially reducing taxes for investors. Furthermore, since they aren’t obligated to distribute capital gains, more funds remain within the corporation to grow and accumulate interest over time.

In addition, an investor can enjoy higher after-tax yields from a C-Corp Ether futures ETF since its distributions often fall under the favorable long-term capital gains tax rate instead of being taxed at the higher ordinary income tax rate.