Monochrome Asset Management says it is preparing to launch Australia’s first "true" spot Ethereum exchange-traded fund on Cboe following the asset’s long-anticipated approval in the U.S. market.
Set to begin trading on Monday (Tuesday 10 AM AEDT), Monochrome’s Ethereum ETF (IETH) follows the approval of its spot Bitcoin ETF (IBTC) in August 2023, which has since garnered $15 million (US$10.1 million) after launching in June.
While that falls well short compared to the billions held in the U.S., the fund is positioning itself as the world’s first to offer in-kind Ethereum subscriptions and redemptions.
It's a feature that could allow for greater tax efficiencies, CEO Jeff Yew told Decrypt in an exclusive interview.
The dual-access bare trust structure is designed to prevent a capital gains tax event, allowing long-term crypto participants to transfer Ethereum into the corresponding Monochrome ETF without triggering a change of legal and beneficial title.
“A ‘bare trust’ means that your investment in the ETF may be treated as if you directly own the Ethereum,” Yew explained.
"The reason it is a 'first' worldwide is due to the unique dual-access model," he said. "That is, investors can not only buy the Ethereum directly via their brokerage apps or from the share registry but also those who already own Ethereum can transfer their holding into the ETF, so that they can benefit from the Ethereum being held in an ETF structure that is subject to oversight by licensed entities."
This means that any actions taken by the trustee are treated as actions of the investor, ensuring that no CGT event is triggered upon redemption or transfer as long as beneficial ownership remains unchanged.
This structure is what Monochrome is hoping sets its offering apart from its U.S. and Australian counterparts.
Defining the funds' structures
While Global X was the first in Australia's market to provide a spot Ethereum ETF back in 2022 (EETH), Yew says the fund's structure doesn't qualify it as such.
The distinction Yew stresses between Monochrome’s structure and Global X's is that Monochrome holds the actual Ethereum directly. In contrast, Global X's EETH uses an intermediary structure through a wholesale trust, according to the product disclosure statements of both funds.
Monochrome’s IETH aligns with what they say is the global market practice of holding crypto assets directly for the investors rather than through an intermediate vehicle, the CEO said.
In response to questions asked about Monochrome's characterization, Global X told Decrypt units in EETH represent an "absolute entitlement" to a specific amount of Ethereum held directly by Global X Management "in a separate trust for each investor."
"EETH provides direct exposure to Ethereum by virtue of that fact that it gives investors an absolute entitlement to Ethereum held in custody by Global X as trustee," a company spokesperson told Decrypt in a statement. "The value of units in EETH directly references the spot price of Ethereum, and investors have a right to redeem their EETH units directly for Ethereum."
Opening the floodgates
In January, the U.S. Securities and Exchange Commission approved 11 spot Bitcoin ETFs. That was later followed by the approval of nine Ethereum ETFs in May, with billions of dollars flowing into the funds in the months that followed.
While the Australian market is unlikely ever to match those inflows, Monochrome is hoping to build on surging investor interest this year.
"US crypto ETFs can’t be supported in kind, including Bitcoin ETFs, and they are not operated in this timezone," Yew said.
IETH will track the CME CF Ether-Dollar Reference Rate – Asia Pacific Variant, with a management fee of 0.50%, reduced to 0.21% for accredited advisers. That places it within the range of its U.S. competitors, offering an average of 0.20% and 0.25%.
The ETF will also be available on most Australian brokerage platforms, supporting transfers from crypto platforms, decentralized wallets, and cold wallets.
Crypto financial services firm BitGo and crypto exchange operator Gemini will provide custody services for IETH, while State Street Australia will serve as the fund administrator.
Editor's note: Updates article to provide additional clarity around the context of "first" to market for spot Ethereum ETFs in Australia, including comments from Global X