Grayscale’s Ethereum Trust (ETHE) Is Trading at a Remarkable 430% Premium, But Soon to Fade


Over the past year, we saw the premium on digital asset manager Grayscale Investments’ Bitcoin and Ethereum contracts skyrocketing. And just like those numerous other times, this time as well, the premium on Ether products has jumped as high as 430%.

Currently, the price of Ether on spot exchanges is around $170 while Grayscale’s Ethereum Trust (ETHE) is trading at $900.

In comparison, the premium on Grayscale’s Bitcoin product (GBTC) is small at nearly 9% which could be because of the “mismatch of supply and demand” in Ether AUM.

On Grayscale, the basic requirements to buy Ether are that one needs to be an accredited investor with a minimum order of $25,000 for a one-year lockup period.

For the first time, the firm reported ETHE inflows separately in its stellar quarterly report, showing that $50 million will be unlocked from the end of July-July, $75 million by the end of October, and $100 million by the end of 2020.

“In one month period June/July 2020 we'll see $44.5M/$6M = 7.4x the current NAV of the float being unlocked. Second half of 2020 we'll see 15x current float being unlocked,” stated analyst Cetris Paribus.

According to him, the ongoing high premium on Ether should be down “substantially” by September, unless there is a euphoric bull run.

Hedge funds are not institutional investors

As we reported, in Q1 of 2020, Grayscale had record inflows. ETHE also had its record quarter ever with $8.5 million inflows in 1Q20 and $4.0 million in the past 12-months.

As per the company report, the majority of the investment in Grayscale’s products came from intestinal investors at 88%, which were dominated by hedge funds.

However, not everyone agrees with their definition of hedge funds which may be keeping too close to Wikipedia.

Source: @jdorman81

Jeff Dorman, CIO of Arca, a crypto investment management firm pointed out that the terminology “institutional investors” used for hedge funds is “misleading” and this is not about their interest rather just arbitrage.

“Hedge funds are not institutional investors. They are professional money managers. Inst inv’s are pensions, family offices, sov wealth funds, endowments. A bunch of hedge funds buying grayscale products shows that there is an arb, not interest,” said Dorman.

“Before GBTC stopped reporting it, they would habitually report 70-80% of inflows being “in-kind”, as in, spot BTC being converted into shares. strong evidence of arb rather than fresh long-term capital being deployed,” shared Nic Carter of Coin Metrics.

However, Grayscale is “great,” cleared Dorman while explaining that the fact is hedge funds don’t need GBTC or ETHE in order to get exposure. He said,

“If they want exposure, their mandates are flexible & they will buy spot/futures, which are liquid. A HF will find a way to buy any asset they want. They are only buying grayscale products for the arb.”

With the one-year holding period of some of the shares coming up, the premium is expected to correct down by a good percentage.

Ethereum (ETH) Live Price

1 ETH/USD =$3,539.7906 change ~ -2.62%

Coin Market Cap

$416.13 Billion

24 Hour Volume

$11.15 Billion

24 Hour VWAP

$3.59 K

24 Hour Change

$-92.76

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