Grayscale ETHE Price & Premium Crashes as Millions of Shares Flood the Market
Grayscale Ethereum Trust share price fell 48% and premium 94% despite the price of Ether surging past $1,000.
The shares of Grayscale’s Ethereum Product, ETHE, that had been trading at a premium of 270% on Dec. 22nd have now come down to just under 15%.
This premium has been coming down over the years; back in June, this premium was at about 950%, and before that in 2018, it was around 3,550% based on the demand for the product, price of the underlying asset, availability of other products, and the lock-up period of these shares.
Grayscale ETHE premium collapsed in the last few weeks, now slightly tighter than GBTC pic.twitter.com/Ah2dW1Dnrp
— skew (@skewdotcom) January 5, 2021
The premium on ETHE has been on an incline since October, when crypto assets started rallying. But this week, the 6-months lock-up period for these shares ended, which pushed this premium down.
“A significant number of private placement investors have their lock-ups ending today and are receiving shares this week,” noted Joshua Frank, CEO at The TIE.
Grayscale’s ETH holdings are still at 2.94 million ETH, worth $2.94 billion, but with no new additions since Dec. 9.
Interestingly, the ETHE share price has fallen over 48% to Nov. 30 level of $12 while during the same period, the price of Ether rallied more than 75% to above $1,000.
The cause of this fall in ETHE price was a flood of new shares in the Grayscale Ethereum Trust. Besides the 47 million shares already outstanding, another 116 million were available to trade as their lock-up period ended.
Because regulators haven't approved an exchange-traded fund (ETF) for cryptocurrencies, Grayscale’s exchange-traded product works similar to a closed-end mutual fund. Here, a fixed number of shares are issued that can at times trade at premiums or discounts with a six-month lock-up period, but without a method to realign the prices.
“By failing to allow a crypto ETF in the U.S., the SEC has left retail investors exposed to significant risks via wide mispricing in less-efficient vehicles, while giving an advantage to accredited investors such as wealthy individuals, hedge funds and private-equity firms,” said James Seyffart, associate analyst for Bloomberg Intelligence.
The price of ETH actually went to the Jan. 2018 high of $1,000 on Coinbase on Sunday only to drop to $885 right after.
One trader expects ETHE investors to affect the price and send it crashing in the near future.
“What are boomers gonna do tomorrow when they see that ETH is up 70% and ETHE is down -50%? and then the next boomers and the next and the next? a reflexive cycle. down to the depths of namek.”