As the month of May comes to a close, many market observers are eagerly awaiting a decision from the U.S. Securities and Exchange Commission (SEC) regarding the approval of a spot ethereum exchange-traded fund (ETF). While Grayscale recently withdrew its plan to convert its Ethereum Trust into a publicly traded ETF, the fund is currently trading at a significant discount to its net asset value (NAV), with a discount of 23.78%.
When Grayscale made the transition of its Bitcoin Trust (GBTC) from an over-the-counter (OTC) traded entity to a publicly traded ETF, the discount on its NAV decreased and stabilized, after previously dropping to 40% two years prior. Grayscale’s Ethereum Trust, which is similar to GBTC but holds ether to back its shares and is traded OTC under the name ETHE, represents 0.00946495 ETH per share. Unlike GBTC, Grayscale’s website does not specify the total amount of ether held in reserves.
According to records from Arkham Intelligence, when combining holdings from Grayscale’s Digital Large Cap fund (GDLC) and the Ethereum Trust (ETHE), the organization currently holds approximately 2.97 million ethereum, which is valued at $8.6 billion. However, ETHE is currently trading at a discount, with metrics from ycharts.com showing a reduction of 23.78%. Prior to the approval of BTC ETFs, ETHE’s discount to NAV had already narrowed, reaching a more modest discount of 7.86% in December 2023.
In the first half of March 2024, the discount hovered around 10%, but since then, it has declined further, reaching a low of over 25% by mid-April. This discount to NAV occurs because ETHE is a closed-end fund that lacks a redemption mechanism to facilitate arbitrage between its share price and NAV. One contributing factor to the fund’s consistent discount rate is the slim likelihood of an ETH-based spot ETF being approved in the near future.
Betting data from Polymarket suggests that the chances of the SEC approving a spot ETH ETF are currently low, with probabilities at just 7%. Additionally, Grayscale’s decision to withdraw its ETHE proposal may indicate that the company expects a denial from the U.S. securities regulator. As speculators closely monitor the situation, the low probability of approval suggests a challenging road ahead for a spot ETH ETF, leaving investors in a state of cautious observation and uncertainty.
What are your thoughts on Grayscale’s Ethereum Trust and the discount it faces? Feel free to share your opinions and thoughts on this topic in the comments section below.
