Grayscale ETH Trust Premium Nearly 10 Times

, Author: Nick Chong, reproduced by Odaily with authorization.

Therefore, Grayscale Ethereum Trust has rapidly emerged as a new choice for investors to buy Ethereum. Unfortunately, since its product is backed by a reserve of ETH, this trust suffers from a downside: a huge premium compared to the spot market price.

secondary title

What is the Grayscale Ethereum Trust Fund?

Each share in the trust is currently backed by about 0.094 ETH, although this number will gradually decrease due to the 2.5% annual fee charged by the Grayscale Fund. Because the digital asset manager has not yet been approved to offer a redemption mechanism to clients, the corresponding shares cannot be used to redeem the ETH in the trust.

Grayscale Trust’s Ethereum is held in Coinbase Custody, which is registered and insured in New York. ETHE is also the only way for investors to officially obtain Ethereum through pension accounts such as IRA or 401(k).

secondary title

ETHE Premium Increases As Ethereum Demand Increases

The price of ETHE has soared in recent weeks amid growing demand for ethereum and a gradual pick-up in the overall cryptocurrency market. The trust is also in fairly high demand, with the price of ETHE up 600% since the start of 2019 as of June 4, according to Tradingview. In the same period, Ethereum only rose by about 50%.

At the close of trading on June 4, off-market prices showed the trust's share price at an all-time high of $239.5. At the same time, analyst Ceteris Paribus observed that Ethereum on Coinbase was only $241.48.

It's not clear why the premium is so high: buying ETHE shares equal to the unit price of ether means that investors are actually buying ether for $2,500.

Not so good for those investors who bought at the apex, ETHE outside the market may already be brewing a wave of decline.

secondary title

premium may not last

However, what worries retail investors and institutions is that this premium may not last for too long.

Although ETHE is traded in the secondary market, its shares are issued through a private placement process, and only qualified investors can participate. According to the definition of U.S. law, "qualified investors" here refer to individuals or entities whose net assets (excluding houses) are not less than US$1 million, or whose annual income reaches US$200,000 (or couples with an annual income of US$300,000) Dollar). Institutions are also qualified investors.

In these rounds, investors (mostly hedge funds, according to Grayscale's first quarter 2020 report) can buy ETHE shares at the current price of ETH, but must lock the holding shares for one year. The lock-up period can prevent arbitrageurs from buying the ETHE issued by Grayscale and selling it in the secondary market to earn the price difference.

However, qualified investors can still profit from the premium if they want to take the long-term.

According to an analysis report on the Ethereum Trust published by Ceteris Paribus, the lock-up period for ETHE shares worth more than $50 million will expire within the next seven weeks. $75 million will be unlocked by the end of October and $100 million will be unlocked by the end of 2020.

As long as those who hold these shares want to, they can liquidate in the secondary market to make a profit, earning the difference between the price paid a year ago and the current price of ETHE in the secondary market-you must know that the premium is quite large now.

According to data from OTC Markets, the exchange that offers ETHE trading has 493,812 shares available for trading, accounting for only 2.5% of the total 13,702,400 shares in circulation.

“By the end of this month, a large number of shares will be unlocked, and the price of ETHE will plummet. In other words, retail investors will be completely destroyed, and there will be no escape.”

secondary title