Unfolding the mystery of $2467 Grayscale Ethereum

in LeoFinance4 months ago (edited)

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The United States based Grayscale Ethereum Trust shares were the first security solely invested in and deriving value from the price of Ethereum. It provides the investors with a traditional investment tool for investing into Ethereum. You have no need to buy, store or sell Ethereum physically. The symbol of the fund is ‘ETHE’. Basically it is an Ethereum share. Grayscale has some other products also. The products are offered periodically. Except for the Grayscale Bitcoin Trust (BTC), the products are not registered with the Securities and Exchange Commission (SEC) or any other regulatory authority. None of the products currently has a redemption program. As the products have less expense and liability, these often trade at a premium over the current market price.

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Image Source - Different products of Grayscale

906% ETH price premium!

ETHE premium also keeps on fluctuating frequently. ETHE was created in December, 2017 but it started to get traded in June, 2019. The Ethereum trust currently has $333.6 million assets under management. The current price is of 1 share is $231.99. Obviously the price has grown in the last few months. The fun part is that 1 share consists of 0.09401259 ETH. That means 1 ETH price is $2467. Oh my god! The current market price of 1 ETH is approximate $245. So ETH is trading here at 906% premium. It is abnormally expensive to buy ETH via this trust than on the open marketplace.
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Image Source - Grayscale Ethereum price

A bit more

Looking at the premium, I wondered who bought the shares as the premium was astonishingly high. Actually the trust targets those investors who don’t want to enter into crypto directly and prefer conventional trading. Just imagine, how difficult it would be to make Warren Buffet understand how to operate an Ethereum wallet. Are you thinking about utilizing arbitrage option looking at the price gap? You can’t do that. All ETHE shares go through mandatory 1 year holding after the creation and the trust requires a minimum investment of $25,000.

Now I dig into the mystery of the price premium

ETHE was listed in 2019 and most of the shares are not sellable due to the lock-up period. As the primary market subscribers can only sell the shares after the lock-up period, there is a good demand in the secondary market. The availability of the shares in the secondary market is very less. The secondary market selling actually widens the premium. The secondary market selling has no holding period and many institutional buyers or hedge funds, who can’t do direct crypto trading due to many regulations, buy ETHE for hedging purpose. When the secondary market demand increases, the primary market demand also increases. Thus, the product is maintaining its demand. ETHE has no redemption due to regulation issues, so an ETHE holder can sell his ETHE shares only. Grayscale ultimately ends up being the net buyer in the crypto market. They can’t sell Ethereum as not a single share is redeemable. It is one way traffic.

As I discussed ETH, let me tell about BTC also. Grayscale Bitcoin is often called the ‘digital gold’. It has 6 months holding currently. The price of 1 share of Grayscale Bitcoin Trust (GBTC) is $11.61. 1 share consists of 0.00096117 BTC. So, price of 1 BTC becomes $12079. Considering the current price of BTC at $9800, the premium is 23%. BTC premium looks practical. Does Ethereum’s shooting premium signal return of Ethereum bull? The gas price of the Ethereum network is often soaring high. Ethereum 2.0 is going to be launched very soon and many Ethereum layer 2 scaling solution projects like Loopring, Matic, StarkWare are rocking the market with their recent developments. Something is cooking up. Try to smell it. Wait a moment! Grayscale has consumed more than 50% of newly mined ETH in this year. Dumping time can arrive when the locked shares mature. What a fun game!

Cheers!
[paragism]

Note: The images (if not cited) are created by the author using free vectors.

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The fact there are not too many options for people who dont want/know how to deal with tokens directly is what causes the premium.

If there were 100 funds like this, there would be very little premium.

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Obviously. It is a strange case of premium. :)

As far as I know, only accredited investors can invest in ETHE right? Does this restriction applies for the secondary market you mentioned?

Also, any idea when the lock-up period expires?

It is OTC product so available through broker-dealer only. I am not sure about the cited restrictions. ETHE has 6 months contract.

The criteria for investments are on the factsheet,
https://grayscale.co/wp-content/uploads/2020/05/ETH-Trust-Fact-Sheet-May-2020.pdf

Not sure if that also applies to the secondary market you referred to.

I am not very sure. Obviously primary market subscription needs accreditation. For secondary market, I am not sure.

Wow. Paying that premium to use ETH as a hedge or to bypass the technical know how seems insane to me.

Yes it is. :)