Grayscale Ethereum Trust Discount Reaches Record 60%, GBTC at 45%

The Grayscale Ethereum Trust (ETHE) is currently trading at a steep discount to its assets under management (AUM) amid dwindling institutional interest in the fund. 

As of now, the fund’s discount to net asset value (NAV) has plunged to a record 60%, the lowest premium rate since the inception of the ETHE. ETHE’s premium rate started to collapse significantly by the end of October after a gradual improvement in September amid the excitement around the Merge upgrade. 

The collapse of FTX, once the third-largest cryptocurrency exchange in the world, has ostensibly been the final nail in the ETHE’s coffin. The incident triggered a wave of capitulation that sent the fund’s premium rate on a constant decline, eventually leading to the current 60% discount rate.

More specifically, the fund saw its discount increase by over 33% in the last month of 2022 alone. Data by YCharts shows that the ETHE discount stood at around 45% on December 1 but spiked to 59.30% by the end of that month. 

The inferior performance of Grayscale’s Ethereum trust relative to its only asset reflects investors’ uncertainty around the ability to redeem ETHE for ether anytime soon.

Grayscale does not offer a redemption program for any of its funds. Therefore, investors can’t give ETHE to Grayscale to redeem ether and because of this restriction, Grayscale trusts trade at a different price to the assets they possess.

Notably, Grayscale’s flagship offering, its Bitcoin Trust (GBTC), has also been trading at record discounts over the past couple of months. As of now, the GBTC discount stands at around 45%, slightly up from the all-time high of around 48%. 

GBTC and ETHE are digital currency investment products that offer exposure to Bitcoin and Ethereum. These funds function as a pseudo-ETF, allowing individual investors to buy and sell them in their own brokerage accounts while enjoying benefits like security, flexibility, and lower fees. 

GBTC has grown to become the largest BTC fund. As of now, the fund manages 635,240 BTC, worth around $12 billion, or more than 3.3% of BTC’s circulating supply. Meanwhile, ETHE holds over 3,000,00 ether.

It is worth noting that Grayscale has been trying to turn its GBTC fund into a spot Bitcoin ETF for some time now. However, the SEC has been denying the company’s application to convert the GBTC to an ETF. Grayscale has even sued the SEC over the rejection of its ETF application, but it could take years for the court to give a verdict.

As reported, Grayscale refused to share its proof-of-reserves in November last year citing “security concerns.” The move stirred up speculations about the financial health of the company.