How to Invest in Ethereum

Ethereum (ETH) is the second-largest and best-known cryptocurrency after bitcoin (BTC). This moneyland.ch guide explains how you can invest in Ethereum.

What is Ethereum?

Bitcoin clearly dominates the cryptocurrency space by a wide lead. But when ranked with all other cryptocurrencies excluding bitcoin, Ethereum holds first place. The cryptocurrency, which was first introduced at the North American Bitcoin Conference in Miami, currently has a market capitalization of 237 billion Swiss francs (as per February 1, 2024).

Strictly-defined, the term Ethereum denotes the entire blockchain-based infrastructure. The cryptocurrency that enables transactions within the Ethereum platform is called Ether. However, the term Ethereum is widely used to describe the cryptocurrency as well.

Unlike bitcoin, the Ethereum blockchain does not limit the number of Ether that can be generated. Ether is used to settle payment transactions on the platform. Ethereum is best known as a platform for smart contracts – transactions that are performed automatically when predefined conditions are met, without the need for an intermediary.

Table 1: The biggest cryptocurrencies by market capitalization in Swiss francs

Date: 01.02.2024.

How can I invest in Ethereum?

If you are interested in investing in Ethereum, there are a number of different ways to do it:

• Buy Ethereum at ATMs or stores: A number of Swiss cryptocurrency service providers sell Ethereum at vending machines and in certain stores.
• Buy Ethereum online: There are many Swiss online service providers that you can use to buy Ethereum online.
• Exchange Traded Notes (ETNs): ETNs track the price of Ethereum and enable you to profit from price growth without having to buy actual Ethereum.
• Ethereum futures ETFs: These ETFs invest in futures – contracts used to speculate on price developments.
• Contracts for difference (CFDs): CFD’s based on the Ethereum price can be used to speculate on positive or negative price developments. Typically, CFDs use leverage, and this exposes you to a lot of risk. For this reason, CFDs generally are not recommended for inexperienced investors.

What are the possible costs of investing in Ethereum?

• Exchange rate markups: All Ethereum service providers and trading platforms use their own exchange rates to calculate the price of Ethereum in Swiss francs. The cost of buying Ethereum largely depends on how high the dealer’s markup over the market price is. Make sure to compare the rate offered with the market price before you buy Ethereum. Even a platform that does not charge fees at all can still be more expensive than other platforms if it uses an unfavorable exchange rate.
• Transaction fees: Most trading platforms change a fee every time you buy or sell Ethereum. You also pay a fee – a brokerage fee – when you buy or sell ETNs using a stock brokerage account.
• Total expense ratios (TERs): Before investing in Ethereum using an ETN (more on this below), you should make sure to compare the total expense ratios (TERs) of Ethereum ETNs. The TER shows the ETN’s ongoing fees, which detract from investment performance.

How can I buy Ethereum offline?

You can buy Ethereum at some brick-and-mortar stores and at special vending machines. Simplicity is the main advantage: You can buy Ethereum and pay with cash (or other payment methods, in some cases), without having to first open an account with a service provider. The main disadvantages of buying Ethereum at brick-and-mortar outlets are the high fees and the poor exchange rates.

Typically, you receive a QR code which lets you access an Ethereum wallet that contains the Ethereum you purchased.

Table 2: Swiss service providers for buying Ethereum offline

With the exception of Bity, all of the Swiss companies included in Table 2 are registered with Finma. Date: 01.02.2024.

How can I buy Ethereum online?

There are many different Swiss online service providers from which you can buy Ethereum online. Most platforms require you to open an account before you can buy Ethereum through them, and that involves some time and effort. The advantage is that the fees are usually much lower than those charged for offline purchases.

Table 3: Swiss service providers for buying Ethereum online

With the exception of Bity, all of the Swiss companies included in Table 3 are registered with Finma. Date: 01.02.2024.

What are Ethereum ETNs?

The principle of exchange-traded notes (ETNs) is similar to that of exchange-traded funds (ETFs). Like an ETF, an ETN aims to replicate the performance of an underlying asset – Ethereum in the case of Ethereum ETNs. These notes enable you as an investor to participate in price growth without buying actual Ethereum. You can invest in ETNs using a stock brokerage account at a bank, as with ETFs. ETNs are passively managed and are best suited to investors who only want to participate in the price developments, without actually holding Ethereum.

The difference between an ETN and an ETF is that an ETN is not an investment fund, but a promissory note that gives you a debt claim against ETN’s issuer. Your investments are not protected if the issuer goes bankrupt because unlike ETF shares, ETNs are not classified as segregated assets.

The titles of many ETNs include the abbreviation ETP, which stands for exchange-traded product. This is a broad term that covers many different assets that are traded on stock exchanges, including both ETNs and ETFs.

Which Ethereum ETNs are there?

There are many different Ethereum ETNs available to Swiss investors, but the selection varies depending on which stock brokerage account you use.

Table 4: Ethereum ETNs ranked by costs (TER)

Date: 01.02.2024.

The ETNs included in Table 4 all use physical replication, meaning the issuer holds actual Ethereum as collateral.

Apart from the TER, you should also pay attention to the brokerage fees and custody fees charged by your bank. Typically, the fees for ETNs are the same as those for ETFs.

Can I invest in Ethereum using ETFs?

Unlike bitcoin, there are not yet any ETFs that replicate the market price of Ethereum. Currently, you only have the option of investing in Ethereum futures ETFs, which speculate on future price developments. These ETFs invest in futures.

What are the risks of investing in Ethereum?

Investing in cryptocurrencies like Ethereum can potentially yield high returns, but it more closely resembles a lottery than a genuine investment. The prices of cryptocurrencies are very volatile, and there is no sure way to predict future price developments. Substantial losses are possible over both short terms and long terms, and a total loss cannot be ruled out. Ethereum can be used as an additional component to further diversify your investment portfolio. But it should never be a major part of your portfolio.

You should be especially careful with leveraged CFDs. Using these is identical to betting on the Ethereum price. Because a part of the investment is paid using a loan, you can end up losing more money than the amount you invested. These products are generally not suitable for inexperienced investors.

More on this topic:
How to buy bitcoin in Switzerland
How to pay with bitcoin in Switzerland
Should I invest in bitcoin & Co?
How to invest money in Switzerland