With an important deadline for spot Ethereum exchange-traded fund (ETF) applications drawing closer in the United States in this month, shares of Grayscale Ethereum Trust seemed to have found their balance.
Data from YCharts showed that as of Friday, shares of the asset manager’s ETHE were trading at a discount of 22% relative to its crypto holdings.
Earlier in March, the discount had stood at 8%, but it has widened since then and has been ranging between 21% and 26% since March 22nd.
Ethereum ETF
A lot of crypto market analysts have shared doubts about the possibility of Ethereum ETFs getting approved in the US in the short term.
It will soon become clear because the Securities and Exchange Commission (SEC) has a deadline of May 25th to respond to the earliest applications it has received from asset manager VanEck.
Head of research at 3iQ, a digital asset investment firm, Mark Connors, said that the steady discount of Grayscale’s ETHE is a reflection of the upside of industry action and not just pricing in the downside of regulation.
Meanwhile, there has been a decline in the odds of approval of Ethereum ETFs. In January, they stood at 76%, but on Monday, they had dropped to 6%.
The Approval Odds
These chances have not been helped by the revelations last month that the SEC views Ethereum as a security internally.
Initially, there had been a boost in approval odds for Ethereum ETFs when Grayscale managed to secure a courtroom victory over the securities regulator.
The judge found the previous denials of the SEC of Grayscale’s applications to be capricious and arbitrary.
Thanks to that decision, the regulator ended up granting approval to a total of 11 spot Bitcoin ETFs in January, which included the conversion of the Grayscale Bitcoin Trust (GBTC).
The Discount
Investors held GBTC and shorted Bitcoin, allowing them to take advantage of the waning discount of GBTC.
In the last several weeks, there has been little change in the discount of ETHE and this means some investors could be gearing up to do the same with it.
This would mean holding ETHE even if there is litigation after the expected rejection of ETF applications by the SEC.
According to Connors, people have managed to gain significant rewards. This was in reference to institutions that traded GBTC until its eventual conversion into an ETF.
He stated that a number of hedge funds are known to practice this kind of trading. Just like GBTC, ETHE also trades at a premium or discount relative to the crypto holdings.
This is because of the structure of the fund. Since shares cannot be redeemed, the ETHE discount increased to as much as 60% in 2023.
Every share of ETHE is the equivalent of 0.0094 Ethereum, which carries a value of $29. But, due to the fund’s structure, the shares of the fund are currently changing hands at $22.50.
Along with other asset managers who want to issue an Ethereum ETF, Grayscale wants to convert its Ethereum fund into a spot ETF.