Nasdaq Submits SEC Application to List Ethereum ETF by Brazilian Firm Hashdex

By Tsunami 09/13/23 4:36 AM

The Nasdaq stock exchange has submitted an application to the Securities and Exchange Commission (SEC) to list an Ethereum exchange-traded fund (ETF) offered by Brazilian asset manager Hashdex. This ETF, aptly named the Hashdex Nasdaq Ethereum ETF, is poised to change the landscape of cryptocurrency investment in the United States.

What sets this ETF apart is its unique approach to Ethereum investment. Unlike traditional ETFs that focus solely on spot assets, the Hashdex Nasdaq Ethereum ETF plans to include both spot Ether and futures contracts in its portfolio. This approach aims to address concerns about potential price manipulation in the spot market, making it a distinctive player in the world of crypto ETFs.

The Fund’s Strategy

The Hashdex Nasdaq Ethereum ETF will be managed and controlled by Toroso Investments, a reputable entity registered as a commodity pool operator with the Commodity Futures Trading Commission (CFTC) and a member of the National Futures Association (NFA). This regulatory oversight is crucial, as the ETF delves into the complex world of cryptocurrency derivatives.

One of the significant concerns surrounding crypto ETFs has been the choice between holding futures contracts or spot assets. The SEC has thus far approved ETFs that focus on futures contracts but has remained cautious about those based solely on spot funds. In response to this regulatory climate, the Hashdex fund appears to be adopting a middle-of-the-road approach.

The fund’s primary investment objective is to mirror the daily changes in the Nasdaq Ether Reference Price. To achieve this, it will diversify its portfolio across several asset types, including:

Spot Ether: A portion of the fund will be dedicated to holding traditional Ethereum tokens traded on cryptocurrency exchanges.
Ether Futures Contracts: The ETF will invest in Ethereum futures contracts listed on the Chicago Mercantile Exchange (CME), one of the most well-regulated futures exchanges in the world.
Cash and Cash Equivalents: To ensure liquidity and stability, the fund will maintain a cash reserve.

Mitigating Price Manipulation Concerns

In explaining its strategy, Nasdaq emphasized the need for a balanced approach. According to the 19b-4 form submitted to the SEC, Nasdaq stated, “Instead of holding 100% spot Ether, which could make it more susceptible to price manipulation in the spot market, the Fund will hold a mix of Spot Ether, Ether Futures Contracts, and cash.”

This strategic mix serves to reduce the ETF’s reliance on the spot market and mitigates concerns about potential manipulation in unregulated Ether spot exchanges. By incorporating Ether Futures Contracts and Ether futures EFPs traded on the CME Market, which is a highly regulated exchange, the Hashdex Nasdaq Ethereum ETF aims to provide investors with a higher level of transparency and security.

The Future of Cryptocurrency ETFs

The Hashdex Nasdaq Ethereum ETF’s application marks another significant step in the evolution of cryptocurrency investment products in the United States. It showcases an innovative approach to managing the inherent risks associated with cryptocurrencies while providing investors with exposure to this booming digital asset class.

As the SEC continues to grapple with the approval of crypto ETFs, this novel approach by Nasdaq and Hashdex could potentially pave the way for more diversified and regulated crypto investment options. The market eagerly awaits the SEC’s decision, as this ETF could open the doors for a new era of crypto asset management within traditional financial markets.

Join us on Telegram