The ETH ETF could be next for Larry Fink, but the sale could be different than the BTC ETF

The Wall Street machine needs to be fed, and promoting more crypto ETFs is an obvious choice, especially given the attention that the Bitcoin (BTC) product has attracted. This essentially means thousands of salespeople holding meetings, showing a new product, saying what it does, and seeing if people want to buy it.

But selling an Ether (ETH) ETF could present an interesting conundrum for issuers. Investors may have just purchased a Bitcoin ETF, so the practical need to spice up portfolios is already satisfied. Why would they need another crypto diversification tool?

That's something Sui Chung, CEO of CF Benchmarks, a digital asset index provider and affiliate of the BlackRock iShares Bitcoin ETF (IBIT), has been thinking about, especially after she recently published a cheat sheet explaining the benefits of a Bitcoin-backed ETF for security investor.

Defining Bitcoin technology and its potential application in finance is part of the explanation, but Chung believes this is secondary to the investment role of the Bitcoin ETF: A small allocation diversifies a portfolio and increases overall risk-adjusted returns.

“The most important thing is how Bitcoin behaves and how its price moves,” Chung said in an interview. “When you add Bitcoin to a portfolio of stocks, bonds and cash, it is simply the most powerful diversifier in the history of investing. If you invest a little, the Sharpe ratio doubles.”

It will be really interesting to see how a mainstream financial institution – be it BlackRock, Franklin Templeton, Fidelity, etc. – markets an ETH ETF to the typical TradFi investor, Chung said. “Because you have already sold Bitcoin by taking the diversification route; someone has already put 1.5% or 2% of the Bitcoins in their portfolio.”

In a way, BlackRock boss Fink has already started delving into the complex world of Ethereum by mentioning tokenization, a much-touted concept among TradFi firms these days and something most ETF issuers probably fully believe in. But such an educational outing should also explain smart contracts and decentralized finance (DeFi), Chung said, not to mention the can of worms of blockchain staking and the SEC's opinion on it.

Of course, a key differentiator between Bitcoin and Ethereum is the way the latter has evolved from an energy-guzzling proof-of-work security system to a more environmentally friendly validator model.

“I don’t think environmental, social and governance ESG factors are being marketed,” Chung said. “Given all the controversy surrounding ESG investing, do you really want to go there today? Probably not.”

BlackRock declined to comment.

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