Grayscale’s Ethereum Trust (ETHE) is currently trading at a steep discount to its assets under management (AUM) due to declining institutional interest in the fund.
So far, the fund’s discount to net asset value (NAV) has fallen to a record 60%, the lowest premium since ETHE’s inception. After gradually improving in September, ETHE’s premium rate began to fall sharply in late October due to the excitement surrounding the merger upgrade. The collapse of FTX, once the world's third largest cryptocurrency exchange, has ostensibly been the final nail in ETHE's coffin. The incident sparked a wave of capitulations that drove the fund's premium down, culminating in the current discount rate of 60%.
More specifically, the fund's discount increased by more than 33% in the last month of 2022 alone. Data from YCharts shows that ETHE’s discount was about 45% on December 1, but soared to 59.30% by the end of the month.
Grayscale’s Ethereum Trust underperformed relative to its sole asset, reflecting investor uncertainty about its ability to convert ETHE into ether in the near term. Grayscale does not offer a redemption program for any of its funds. Therefore, investors cannot give ETHE to Grayscale to redeem ETH, and because of this restriction, the Grayscale Trust trades at a different price than the assets they own.
Notably, Grayscale’s flagship Bitcoin Trust (GBTC) has also been trading at record discounts over the past few months. As of now, GBTC is trading at a discount of around 45%, slightly above its all-time high of around 48%.
GBTC and ETHE are digital currency investment products that provide exposure to Bitcoin and Ethereum. These funds act as pseudo ETFs, allowing individual investors to buy and sell them in their own brokerage accounts while enjoying the benefits of safety, flexibility and lower fees.
GBTC has grown to become the largest BTC fund. As of now, the fund manages 635,240 bitcoins, worth about $12 billion, or more than 3.3% of all bitcoins in circulation. Meanwhile, ETHE holds more than 3,000,00 ETH.
Notably, Grayscale has been trying to convert its GBTC fund into a spot bitcoin ETF for some time. However, the SEC has consistently rejected the company’s application to convert GBTC into an ETF. Grayscale even sued the SEC for rejecting its ETF application, but it could take years for the court to rule.
In November, Grayscale reportedly refused to share its proof of reserves, citing “security concerns.” The move has sparked speculation about the company's financial health.
