Grayscale, a global leader in crypto funds, has taken a significant step forward by initiating the conversion of its Grayscale Ethereum Trust (ETHE) into a spot Ethereum (ETH) ETF. This development has already caused a 2.71% increase in ETHE’s share price on the day of the announcement.
The Transformation of Grayscale Ethereum Trust
As announced in a press release by Grayscale CEO Michael Sonnhenshein, this transformation marks the “final stage” in the evolution of the Ethereum Trust, which was initially launched in March 2019. Grayscale’s main objective has always been to offer investors a transparent and regulated gateway to cryptocurrencies through familiar product structures.
An ETF, or “exchange-traded fund”, is a type of investment fund and exchange-traded product, which tracks the price of an underlying asset or a group of assets like cryptocurrencies. A spot Ethereum ETF would allow investors to purchase shares that are each backed by a fixed amount of ETH held by the fund or a partnering custodian.
The Potential Benefits of the Conversion
Currently, the shares of ETHE are not easily redeemable for ETH, leading to a disparity between the price of its shares and the ETH that supports them. With the fund holding over $5.1 billion worth of ETH against just $3.6 billion in share value, the conversion to an ETF could level the playing field. This could lead to significant profits for existing holders once the share value is aligned with the fund’s assets.
Grayscale is not alone in its pursuit of an Ethereum ETF spot. In the past month, firms such as Ark/21Shares, HashDex, VanEck, and Galaxy/Invesco have also submitted their filings. Despite Grayscale’s ongoing efforts to convert its Grayscale Bitcoin Trust (GBTC) into a Bitcoin ETF, it has consistently faced resistance from the Securities and Exchange Commission (SEC).
The Future of Ethereum ETFs
Aside from the Grayscale Ethereum Trust ETF, Grayscale has also applied for a futures Ethereum ETF, joining a host of other firms in recent months. Unlike spot ETFs, futures ETFs are backed by cash-settled futures contracts rather than actual ETH, which could have different implications for the underlying asset’s price.
Despite the first batch of futures ETH ETFs launching recently, their opening volume was significantly lower than that of ProShares’ Bitcoin Strategy ETF, which saw $500 million of volume in just one day in October 2021.
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