Grayscale is preparing to launch an Ethereum exchange-traded fund (ETF) that may see significant outflows, potentially averaging around $110 million per day. This projection is based on the observation of the Grayscale Bitcoin Trust (GBTC) when it converted from a closed-end fund to an ETF on January 11. In the month following the conversion, the GBTC experienced 23% of its assets under management (AUM) flow out, totaling $6.5 billion. Grayscale’s Ethereum Trust (ETHE) currently has an AUM of $11 billion, and if it experiences similar outflows as GBTC, it could result in average daily outflows of $110 million, representing around 30% of Ethereum’s average daily trading volume on Coinbase. Recent data has shown that ETHE has traded at a discount of up to 26% compared to its net asset value (NAV), but analysts expect the discount to narrow and result in outflows as the ETF transitions into a spot ETF.
Following the Securities and Exchange Commission’s approval of spot Ether ETFs, ETHE’s discount has already started to narrow, although the ETF has yet to commence trading as a spot ETF. Data reveals that the discount on ETHE had exceeded 25% on May 1 but gradually decreased over the month amid speculation surrounding the SEC’s potential approval of spot Ether ETFs. Kaiko analysts also noted that GBTC’s outflows were surpassed by inflows into other Bitcoin ETFs by the end of January. They predict that even if the initial inflows into Ether ETFs disappoint in the short term, the approval itself has significant implications for Ether as an asset, removing some of the regulatory uncertainty that has weighed on its performance over the past year.
The recent approval of Ethereum ETFs has paved the way for more crypto investment products, according to research from TD Cowen’s Washington Research Group. The approval of spot ETH ETFs signifies Ether’s status as a non-security, according to industry experts. Bloomberg ETF analyst James Seyffart has indicated that the approval of these commodity-based trust shares implies that the SEC explicitly recognizes Ether as not being a security. This recognition could extend to other tokens as well, solidifying their classification as commodities. The speed of approval for Ether ETFs caught some off guard, but the research group views it as an inevitable outcome following the approval of Bitcoin ETFs earlier in the year. Jaret Seiberg, a member of TD Cowen’s team, noted that the Ethereum ETF approval came about six months earlier than expected but was predictable after the SEC gave the green light to crypto futures ETFs.
Overall, the approval of Ethereum ETFs has triggered a significant improvement in Ether’s performance, with more than 25% in gains seen for the second-largest cryptocurrency. The approval has also signaled potential for more crypto investment products in the market. The recent trend in crypto ETF approvals suggests a growing acceptance of digital assets as legitimate investment vehicles by regulatory authorities. While there may be initial outflows from the Grayscale Ethereum ETF, there are expectations for long-term growth potential as regulatory uncertainties surrounding Ether and other cryptocurrencies begin to dissipate. Investors are likely to continue monitoring the performance of the Grayscale Ethereum ETF and other crypto investment products as they navigate the evolving landscape of digital asset investments.
