Grayscale Plans to Convert Ethereum Trust into ETF
Grayscale, the company behind the largest Ethereum investment vehicle in the world, is seeking regulatory approval to convert its Ethereum Trust (ETHE) into an exchange-traded fund (ETF). The company has filed a 19b-4 with the Securities and Exchange Commission (SEC) through NYSE Arca, shortly after the introduction of the first series of futures Ethereum ETFs in the US market. By converting ETHE into an ETF, Grayscale aims to bring Ethereum further into the US regulatory framework. This move follows Grayscale’s ongoing efforts to convert its Bitcoin Trust (GBTC) into an ETF.
The Grayscale Ethereum Trust currently trades at a 30% discount to the value of its underlying ETH holdings. However, under an ETF structure, ETHE shares would be directly redeemable for the underlying ETH, which would likely bring the net asset value and share value to parity. Following the announcement of the plan to convert ETHE into an ETF, its shares spiked by 6.15%.
Grayscale’s Battle for a Bitcoin ETF
While Grayscale continues its battle to convert its Bitcoin Trust into a spot Bitcoin ETF, it has faced challenges from the SEC. However, a recent court victory in August has given hope to Grayscale and other firms seeking a spot Bitcoin ETF listing in US markets. The court ruled that the SEC’s denial of Grayscale’s spot Bitcoin ETF application while allowing futures Bitcoin ETFs was “arbitrary and capricious.” Since then, the discount on GBTC shares has narrowed from 25% to 20%.
Last month, Grayscale and other firms filed for futures Ethereum ETFs backed by cash-settled futures contracts rather than actual ETH. These contracts are speculations on the price trajectory of an asset.
Hot Take: Grayscale’s Push for Crypto ETFs
Grayscale’s decision to convert its Ethereum Trust into an ETF is a significant step toward bringing Ethereum into the US regulatory perimeter. With the success of its Bitcoin Trust and the recent court victory, Grayscale is optimistic about obtaining regulatory approval for a spot Bitcoin ETF as well. The conversion of ETHE into an ETF would eliminate the discount on shares and provide direct redemption for the underlying ETH. This move reflects Grayscale’s commitment to providing investors with regulated and accessible cryptocurrency investment options.
NYSE Arca filed a 19b-4 with the Securities and Exchange Commission (SEC) to convert the Grayscale Ethereum Trust (ETHE) into a spot Ethereum ETF shortly after the first series of futures Ethereum ETFs reached the U.S. market.
When listing a new crypto ETF, regulatory permission is always sought from the exchange listing the new fund’s shares, rather than the sponsor itself.
“As we file to convert ETHE to an ETF, the natural next step in the product’s evolution, we recognize this as an important moment to bring Ethereum even further into the U.S. regulatory perimeter,” said Grayscale CEO Michael Sonnenshein in a Monday statement.
Grayscale did not immediately respond to Decrypt’s request for comment.
As with its Bitcoin fund, the Grayscale Ethereum Trust is the largest Ethereum investment vehicle worldwide, comprising 2.5% of all circulating ETH.
Since launching in 2019, conversion into a spot ETF has always been the “final stage” of its intended lifecycle, per the press release.
Right now, ETHE shares trade at a whopping 30% discount to the underlying ETH held by the fund. Whereas the total value of the fund’s ETH holdings amount to $5.14 billion at writing time, its shares total to just $3.6 billion.
Under an ETF structure, ETHE shares would be directly redeemable for the underlying ETH. This would likely bring the firm’s net asset value and share value to parity.
Following the announcement, shares for ETHE spiked 6.15% on the day.
Grayscale turns from Bitcoin to Ethereum
Thus far, the company’s long battle to convert the Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF is yet to bear fruit.
However, a major court victory over the SEC in August boosted confidence among both Grayscale and its rivals that the agency may have no choice but to allow a spot Bitcoin ETF to list on U.S. markets. The court found that the SEC was being “arbitrary and capricious” toward Grayscale in denying its spot Bitcoin ETF application while permitting alternative futures Bitcoin ETFs.
Since then, GBTC’s share discount has narrowed from 25% to 20%.
Grayscale was one of many firms to file for a futures Ethereum ETF last month, which is backed by cash-settled futures contracts rather than actual ETH.
A futures contract is an agreement to buy or sell a given financial asset at a later date at a pre-determined price, effectively making them speculations on an asset’s price trajectory.
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