If Grayscale’s upcoming spot Ether exchange-traded fund (ETF) follows a similar path to its Bitcoin counterpart, there could be significant short-term pressure on the price of Ether (ETH). According to a May 27 report by Kaiko analysts, the Grayscale Ethereum ETF could experience daily outflows averaging $110 million in its first month.
Comparison with Grayscale Bitcoin Trust
The Grayscale Bitcoin Trust (GBTC) converted from a closed-end fund to an ETF on January 11, experiencing substantial outflows. In the first month, 23% of its assets under management (AUM) flowed out, totaling $6.5 billion. Kaiko’s analysis suggests that if the Grayscale Ethereum Trust (ETHE) undergoes a similar transformation, it could see an equivalent magnitude of outflows.
Potential Outflows and Market Impact
ETHE has an AUM of $11 billion. If it experiences outflows comparable to GBTC, it could result in $110 million of average daily outflows. This amount represents approximately 30% of ETH’s average daily trading volume on Coinbase, indicating a significant impact on market liquidity and potentially on ETH prices.
Discount to Net Asset Value (NAV)
Over the past three months, ETHE traded at a discount of up to 26% to its net asset value (NAV). Kaiko researchers noted that once ETHE converts to a spot ETF, outflows or redemptions are likely as the discount narrows. This pattern was observed with GBTC, which traded at up to a 17% discount before its ETF conversion but has since seen the discount shrink, allowing many holders to exit at favorable prices. As of May 24, GBTC’s discount had narrowed to just 0.03%.
Also Read: Grayscale’s Unexpected Withdrawal Of Ethereum Futures ETF
SEC Approval and Market Speculation
ETHE’s discount began narrowing after the Securities and Exchange Commission (SEC) gave initial approval for spot Ether ETFs on May 23, even though trading as a spot ETF has yet to commence. On May 1, ETHE traded at over a 25% discount, but by May 24, this discount had narrowed to 1.28%, according to YCharts data.
Long-Term Implications for Ethereum
Despite potential short-term outflows, the approval of Ether ETFs has significant long-term implications for ETH as an asset. It removes some of the regulatory uncertainty that has weighed on ETH’s performance over the past year. Kaiko analysts highlighted that while GBTC saw initial outflows, these were surpassed by inflows into other Bitcoin ETFs by the end of January.
