Analysts and industry experts are highlighting a critical factor hindering institutional interest in spot ether exchange-traded funds (ETFs): the absence of staking capabilities. According to Gordon Grant, a cryptocurrency derivatives trader, institutional players are less inclined to invest in spot ether ETFs until staking becomes available. Grant explained that staking provides a significant yield and is seen as crucial for institutional investors looking to maximize returns.

Staking ether involves locking up the cryptocurrency to support the Ethereum blockchain and earning rewards in return. This feature is highly attractive due to its potential for generating passive income, which traditional spot ether ETFs currently lack. Grant emphasized that until staked ether ETFs are introduced, institutional investors are likely to opt for on-chain solutions instead of ETFs for their ether holdings.

JP Morgan has echoed similar sentiments, noting in a recent report that the exclusion of staking from approved spot ether ETFs diminishes their appeal as investment products. The report suggests that the absence of staking could limit net inflows into these ETFs to $3 billion this year. However, if staking is permitted, JP Morgan anticipates that inflows could double to around $6 billion.

In response to these market dynamics, asset managers in Hong Kong are actively pursuing the inclusion of staking features in their spot ether ETFs. Yat Siu, Chairman of Animoca Brands, highlighted ongoing discussions in Hong Kong about incorporating staking rewards. Siu expressed optimism that Asia, particularly Hong Kong, may approve staking features ahead of the U.S., citing regulatory considerations and potential timelines for implementation.

The road to introducing spot ether ETFs in the U.S. has seen regulatory hurdles, with recent approvals clearing the way for these products pending SEC S-1 filing approvals. However, until staking is integrated into these ETFs, their full potential to attract institutional capital remains constrained. The industry is closely watching developments, anticipating how regulatory decisions on staking could shape the future adoption and growth of spot ether ETFs in global markets.