Grayscale’s Ethereum Trust discount narrows to three-year low as ETF approval looms.
Grayscale’s Ethereum Trust (ETHE) discount has narrowed to less than 10%, its lowest level since 2021, amid rising expectations of the approval of a spot Ethereum exchange-traded fund (ETF).
As of May 21, the ETHE discount has narrowed to 6.66%, according to market data from YCharts. A “discount” refers to when ETHE shares are trading below net asset value (NAV).
ETHE began trading at a discount in early 2021 after Grayscale halted buybacks, reaching nearly 60% by the end of 2022.
But that range will begin to narrow in 2023, after Grayscale won a significant legal victory against the U.S. Securities and Exchange Commission (SEC) in its attempt to convert its Bitcoin trust into an ETF. Since then, the discount rate has hovered between 10% and 20% before dropping sharply to 6% due to recent developments involving the Ethereum ETF.
What is driving the discount?
This week, reports emerged that the US SEC may approve a spot Ethereum ETF. This is a significant change from previous expectations.
Several ETF applicants quickly amended their filings with financial regulators in response. On May 21, Grayscale and other issuers such as Fidelity withdrew their staking offerings from their spot Ethereum ETF plans.
As a result, market analysts have suggested that ETHE’s narrowing discount is a sign that traders are taking advantage of the arbitrage opportunities provided by the discount and are rushing to sell spot products if ETHE is converted to an ETF.
As a result, experts have warned that the launch of the Grayscale Ethereum ETF could result in significant outflows, mirroring the situation at GBTC. Nic Puckrin, CEO of Coin Bureau, wrote:
“Let’s not forget what happened after GBTC approved the BTC ETF. Grayscale’s ETH product holds 2.9 million ETH (about $10 billion). This accounts for approximately 76% of the total float of ETH investment products worldwide. This is more than the amount of GBTC held prior to the approval of the BTC ETF.”
