In May and early June, Grayscale Investments’ second flagship fund, the Ethereum Trust, saw a surge in demand.
Stocks of the trust (ETHE), which were traded on OTC markets, went extremely high when retail investors got on board. At one point, buyers of the trust bought an exposure to ETH with an implied market cap of $ 230 billion – more than BTC’s.
“This means that $ ETHE investors are buying $ ETH at an implied market cap of ~ $ 230 billion, which is a premium of 725%,” one analyst said of the premium.
But finally the premium has weakened. Here’s why.
Shares in the Grayscale Ethereum Trust (ETHE) appear after institutional unlocking
Grayscale Investments is a cryptocurrency fund manager best known for its Bitcoin Trust (GBTC) and Ethereum Trust.
Ethereum Trust shares can be purchased in two ways:
- Accredited (institutional) investors can purchase shares in the trust as part of private placements at market prices. Since each ETHE share represents ~ 0.094 ETH, these investors can buy each share at the market price of 0.094 ETH.
- Any investor, accredited or not, can buy the shares on the secondary OTC market.
The condition with the first method is that investors must block the ETHE they have bought for one year.
This blocking period leads to the formation of a premium in the secondary market price of ETHE. That is the already mentioned premium of 725 percent.
As Joseph Todaro observed, ETHE is down nearly 50 percent from its June 4 highs, resulting in a 350 percent premium over the spot Ethereum price.
Grayscale Ethereum Trust Chart from TradingView.com
According to a data analyst in the field, the crash in shares of the Grayscale Ethereum Trust coincides with the end of a lock-up period for the “first major tranche” of ETHE shares.
That said, accredited investors likely liquidated the ETHE shares that were just unlocked to get the premium over Ethereum’s spot price.
The effect on ETH
According to Avi Felman, a trader at BlockTower Capital, the recent price move by ETHE down could drive Ethereum up, as paradoxical as that may sound.
He explained that the structure of the ETHE market creates a scenario where borrowers are scarce in ETH even though they are not adding any supply to the market.
This creates a dynamic where Ethereum receives a “sustained offer” while ETHE is put under pressure over time.
Some have cited ETHE’s recent collapse as the reason Ethereum is nearing its high of $ 250 while Bitcoin stalled in the middle of $ 9,000.
Grayscale still see mass investment
The immediate appeal of investing in Grayscale’s Ethereum Trust has waned with the collapse of the premium. But the company is doing well.
Barry Silbert, CEO of the Digital Currency Group, announced on June 23: “Record fundraising day today for Grayscale Investments. ”That comment was made one day after the company’s assets under management metric was over $ 4 billion.
Grayscale Net Assets Under Management Data (June 22)
It can be postulated that investors who have paid out their activated ETHE have paid the capital back into the product.
The premise of this investment is to get the premium in case the trust’s shares trade much higher than the spot of Ethereum in the coming months.
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