Persistent Discount Plagues Grayscale’s Ethereum Trust as ETF Decision Nears

As May approaches its end, a significant number of market watchers are keen to find out whether the U.S. Securities and Exchange Commission (SEC) will approve a spot ethereum exchange-traded fund (ETF). Although Grayscale retracted its plan to convert its Ethereum Trust into a publicly traded ETF, the fund’s discount to net asset value (NAV) currently sits at a 23.78% discount.

Grayscale Ethereum Trust Continues to Trade at Steep Discount

When Grayscale transitioned its Bitcoin Trust (GBTC) from an over-the-counter (OTC) traded entity to a publicly traded ETF, the discount on NAV reduced and stabilized after previously dropping to 40% two years prior. The firm’s Ethereum Trust, akin to GBTC but holding ether to back its shares and traded OTC style under the name ETHE, indicates each share represents 0.00946495 ETH. Unlike GBTC, Grayscale’s website does not specify the total ether held in reserves.

Records from Arkham Intelligence indicate that combining holdings from Grayscale’s Digital Large Cap fund (GDLC) and the Ethereum Trust (ETHE), the organization possesses approximately 2.97 million ethereum, valued today at $8.6 billion. Currently, ETHE is trading at a discount, as metrics from ycharts.com display a 23.78% reduction. Prior to the approval of BTC ETFs, ETHE’s discount to NAV had already tightened, closing in at a more modest 7.86% discount in December 2023.

In the first half of March 2024, the discount hovered around 10%. Since then, however, it has declined, reaching a low exceeding 25% by mid-April. Essentially, a discount to NAV arises because ETHE is a closed-end fund lacking a redemption mechanism to facilitate arbitrage between its share price and NAV. One contributing factor to the fund’s static discount rate is the slim likelihood of an ETH-based spot ETF gaining approval soon.

Betting data from Polymarket suggests that the chances of the SEC green-lighting a spot ETH ETF are currently low, with probabilities at just 7%. Additionally, Grayscale pulling back its ETHE proposal might indicate that the firm anticipates a denial from the U.S. securities regulator. As speculators closely monitor the situation, the low probability of approval points to a difficult road ahead for a spot ETH ETF, leaving investors in a state of vigilant observation and uncertainty.

What do you think about Grayscale’s Ethereum Trust and the discount to NAV it faces? Share your thoughts and opinions about this subject in the comments section below.

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