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Grayscale’s Ethereum Trust (ETHE) Discount Shrinks to Lowest Level Since 2021

Grayscale’s Ethereum Trust (ETHE) discount has recently dropped to under 10%, marking its lowest level since 2021. This decrease in the discount comes amidst growing anticipation for the approval of a spot Ethereum exchange-traded fund (ETF).

As of May 21, data from YCharts indicates that the ETHE discount rate has narrowed to 6.66%. The discount is a metric used to show when ETHE shares are trading below their net asset value (NAV).

ETHE first started trading at a discount in early 2021 when Grayscale stopped redemptions, with the discount reaching almost 60% by late 2022.

However, the discount has been gradually decreasing since 2023 as Grayscale achieved significant legal victories against the US Securities and Exchange Commission (SEC) in its efforts to convert its Bitcoin trust into an ETF. In recent times, the discount has fluctuated between 10% and 20%, but has now sharply dropped to 6% following the latest developments surrounding the Ethereum ETF.

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What is driving the discount?

This week, reports surfaced suggesting that the US SEC might greenlight spot Ethereum ETFs, a departure from prior expectations.

In response, several ETF applicants promptly adjusted their filings with the financial regulator. On May 21, Grayscale and other issuers, such as Fidelity, removed the staking proposal from their spot Ethereum ETF plans.

Market analysts believe that the dwindling discount in ETHE signals that traders are flocking to the product to capitalize on the arbitrage opportunities presented by the discount and prepare to sell if ETHE transitions into an ETF.

Experts caution that a Grayscale Ethereum ETF could see significant outflows upon launch, similar to the situation with GBTC. Nic Puckrin, CEO of Coin Bureau, expressed:

“Let’s not forget what happened with GBTC post BTC ETF approval. Grayscale’s ETH product holds 2.9m ETH (c. $10bn). This represents about 76% of the total float of ETH investment products globally. This was more than GBTC held prior to BTC ETF approval.”

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