The upcoming spot Ether (ETH) exchange-traded fund (ETF) offered by Grayscale may witness substantial outflows, potentially reaching an average of $110 million per day, mirroring the initial performance of the Grayscale Bitcoin Trust (GBTC) when it converted to an ETF.
This projection stems from a May 27 report by Kaiko analysts, which draws parallels between the two funds’ early market behaviors.
Grayscale BTC ETF and ETH ETF
On January 11, the Grayscale Bitcoin Trust (GBTC) transitioned from a closed-end fund to an ETF, resulting in significant outflows. During its first month, 23% of its assets under management (AUM), amounting to $6.5 billion, exited the fund.
This trend suggests that the Grayscale Ether fund (ETHE), which currently holds an AUM of $11 billion, could experience similar outflows if it follows the same pattern. According to Kaiko, such outflows would represent $110 million of average daily outflows, accounting for approximately 30% of ETH’s average daily trading volume on Coinbase.
Discount to NAV
ETHE has been trading at a notable discount to its net asset value (NAV) in recent months, with discounts reaching up to 26%. Analysts from Kaiko noted that as ETHE transitions to a spot ETF, it is reasonable to anticipate outflows or redemptions as the discount narrows.
This expectation is based on the historical performance of GBTC, whose discount to NAV substantially decreased post-conversion. Prior to conversion, the Grayscale ETH ETF traded at a 17% discount, which has since reduced, enabling many holders to exit at or above their entry price. As of May 24, GBTC’s discount to NAV had stabilized around 0.03%, according to YCharts.
Discount Reduced to 1.28%
The potential for outflows from ETHE has already influenced its market performance. Since the U.S. Securities and Exchange Commission (SEC) gave the initial approval for spot Ether ETFs on May 23, ETHE’s discount to NAV has significantly narrowed.
On May 1, ETHE traded at a discount exceeding 25%. However, by May 24, amid speculation and subsequent SEC approval, this discount had reduced to 1.28%, as reported by YCharts.
Grayscale Awaits the SEC’s Approval
Despite these projected outflows, Kaiko analysts highlight a positive aspect: the approval of the Ether ETF is expected to have favorable long-term implications for ETH as an asset. It potentially removes some of the regulatory uncertainty that has affected ETH’s performance over the past year.
Furthermore, the analysts observed that GBTC’s initial outflows were eventually surpassed by inflows into other Bitcoin ETFs by the end of January, suggesting a potential stabilization and redistribution of investment within the market.
In conclusion, while the Grayscale spot Ether ETF might face significant initial outflows similar to those experienced by GBTC, the approval of the ETF could ultimately strengthen ETH’s position by alleviating regulatory concerns. Investors and market participants will closely watch the early days of trading to gauge the fund’s performance and its broader impact on the Ethereum ecosystem.
