Grayscale's Ethereum Trust discount narrows to 3-year low as ETF approval looms (2024)

Grayscale’s Ethereum Trust (ETHE) discount has shrunk to under 10%, its lowest level since 2021, amid growing expectations for approving a spot Ethereum exchange-traded fund (ETF).

As of May 21, market data from YCharts shows the ETHE discount rate has narrowed to 6.66%. The “discount” indicates when ETHE shares trade below their net asset value (NAV).

ETHE began trading at a discount in early 2021 after Grayscale halted redemptions, reaching nearly 60% in late 2022.

However, it started to narrow in 2023 as Grayscale secured significant legal victories against the US Securities and Exchange Commission (SEC) in its bid to convert its Bitcoin trust into an ETF. Since then, the discount has hovered between 10% and 20% before sharply dipping to 6% following recent developments around the Ethereum ETF.

What is driving the discount?

This week, reports emerged that the US SEC might approve spot Ethereum ETFs, a significant shift from previous expectations.

Several ETF applicants swiftly amended their filings with the financial regulator in response. On May 21, Grayscale and other issuers like Fidelity withdrew the staking proposal from their spot Ethereum ETF plans.

As a result, market analysts have suggested that the narrowing discount in ETHE was a sign that traders were piling into the product to take advantage of the arbitrage opportunities the discount presented and sell spot if ETHE converts to an ETF.

Consequently, experts have cautioned that a Grayscale Ethereum ETF could experience substantial outflows at launch, mirroring the GBTC’s situation. Nic Puckrin, CEO of Coin Bureau, wrote:

“Let’s not forget what happened with GBTC post BTC ETF approval. Grayscale’s ETH product holds 2.9m ETH (c. $10bn). This represents about 76% of the total float of ETH investment products globally. This was more than GBTC held prior to BTC ETF approval.”

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