Grayscale Ethereum Trust was approved by the SEC, what impact will it have on the encryption market?

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1. What is Grayscale Ethereum Trust (ETHE)?

Grayscale Ethereum Trust (ETHE) is a publicly tradeable investment vehicle backed by Ethereum and launched and operated by Grayscale Investments (a subsidiary of Digital Currency Group).

Trusts (investment trusts) are companies that own a fixed amount of a given asset (such as gold, bitcoin, or ethereum), and investors pool funds and buy shares in the trust, with contracts representing ownership of the assets held by the trust. Holding an Ethereum trust means that you own the corresponding amount of ETH assets represented by it. Currently, each share of Grayscale Ethereum Trust represents 0.09319195 ETH, but since Grayscale Fund charges 2.5% annual management fee every year, the amount of Ethereum represented by each share will gradually decrease.

As an offering of securities, the Grayscale Ethereum Trust is registered under Section 12(g) of the Securities Exchange Act of 1934, as amended. Since Grayscale obtained the approval of the U.S. Financial Industry Regulatory Authority (FINRA) in May 2019, the trust share code-named "ETHE" has been listed on the over-the-counter trading market. Currently, ETHE is publicly quoted on OTCQX and is open to qualified investors.

After the trust shares are listed, all qualified individual and institutional investors can invest in Ethereum by buying ETHE. They do not need to purchase directly in the secondary market, nor do they need to store and keep ETH by themselves. Grayscale Trust’s Ethereum is held in Coinbase Custody, which is registered and insured in New York.

However, it is worth noting that since Grayscale has not yet been approved to provide customers with a redemption mechanism, the corresponding shares held cannot be used to redeem the Ethereum in the trust.

On August 6 this year, Grayscale Investment submitted the Ethereum Trust registration statement to the SEC. On October 12, Grayscale announced that its application for Ethereum Trust registration was officially approved by the SEC.

At present, the Grayscale Ethereum Trust Fund ETHE is one of the few securities products linked to ETH and regulated, and it is also the only way for investors to formally obtain Ethereum through retirement accounts such as IRA or 401(k). In recent years, the demand for Ethereum Trust has increased rapidly, coupled with the lack of liquidity in the market due to the lock-in period, there has been a huge premium between Ethereum Trust and spot for a long time, reaching a peak of 1826% in June 2019.

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2. What is the significance of ETHE being officially approved?

For investors, Ethereum Trust Fund, as a qualified Ethereum investment product, has obvious advantages and certain disadvantages. The advantage is that qualified investors can access cryptocurrencies through the traditional stock market (such as purchasing encrypted trust products with 401k accounts), avoid regulatory uncertainty and tax uncertainty, and do not need to keep their wallets and private keys; but the disadvantages are It is necessary to bear the risks brought about by relatively high annual management fees and premiums.

However, these so-called "disadvantages" have not affected the strong demand of the Ethereum Trust. According to Grayscale's official announcement, in the second quarter of 2020, the average weekly inflow of Ethereum Trust reached 10.4 million US dollars, setting a quarterly record of 135.2 million US dollars.

As the world's largest encrypted asset management company, according to data released on October 9, Grayscale currently manages encrypted assets worth US$6 billion, of which ETHE is US$806 million.

So, what does the formal approval of the Ethereum Trust mean to Grayscale and the industry? What is the impact and significance?

First of all, for Grayscale, this means that the Ethereum Trust Fund has become the first publicly quoted Ethereum investment vehicle in the United States, and it is also the second registration after the Bitcoin Trust (approved on January 21, 2020). Reporting companies' digital currency investment vehicles to the U.S. Securities and Exchange Commission (SEC).

This will make Ethereum trust products get a higher degree of attention. In the future, more qualified individual and institutional investors may choose Ethereum Trust, thereby boosting confidence in the Ethereum market.

Secondly, after becoming an SEC reporting company, the lock-up period of Ethereum Trust (ETHE) securities will be shortened from 1 year to 6 months, and it can be realized after holding for 6 months. Qualified investors who previously owned or purchased private placement shares of Ethereum Trust will have more liquidity opportunities, and the liquidity of the entire circulation market will also increase.

Finally, it’s worth mentioning that the Ethereum Trust will be required to file quarterly and annual reports, including financial statements.