Grayscale’s forthcoming spot Ethereum exchange-traded fund (ETF) is anticipated to experience substantial outflows, with projections averaging around $110 million per day.
According to a recent report by analysis firm Kaiko, this projection is based on the observed pattern with Grayscale’s Bitcoin Trust (GBTC) after it transitioned from a closed-end fund to an ETF on January 11. In the first month following its conversion, GBTC experienced outflows amounting to 23% of its assets under management (AUM), totaling $6.5 billion.
Grayscale’s Ethereum ETF Holds $11 Billion in AUM
Currently, Grayscale’s Ether Trust (ETHE) has an AUM of $11 billion. If ETHE experiences outflows similar to GBTC, it could result in average daily outflows of $110 million, which represents about 30% of Ether’s average daily trading volume on Coinbase, according to Kaiko.
Recent data indicates that over the past three months, ETHE has traded at a discount of up to 26% compared to its net asset value (NAV).
Anticipated Outflows Upon Conversion to Spot ETF
Kaiko researchers noted that once ETHE transitions into a spot ETF, outflows or redemptions are expected as the discount narrows. A similar trend was seen with GBTC, where its discount to NAV significantly decreased post-conversion, allowing investors to exit the trust at or above their entry price. GBTC traded at a discount of up to 17% before its conversion, but this gap has gradually narrowed over time.
Following the Securities and Exchange Commission’s (SEC) initial approval of spot Ether ETFs on May 23, ETHE’s discount has already started to narrow. Despite this, the ETF has yet to begin trading as a spot ETF. Data from YCharts shows that ETHE’s discount exceeded 25% on May 1 but gradually decreased over the month amid speculation about the SEC’s potential approval of spot Ether ETFs. By May 24, the discount had reduced to 1.28%.
Potential Impact and Future Prospects
Kaiko analysts also highlighted that GBTC’s initial outflows were eventually surpassed by inflows into other Bitcoin ETFs by the end of January. They concluded that while initial inflows into Ether ETFs might disappoint in the short term, the approval itself has significant implications for Ether as an asset, reducing some of the regulatory uncertainty that has impacted its performance over the past year.
Broader Implications of Spot Ether ETF Approval
The recent approval of Ethereum ETFs has paved the way for more crypto investment products, as per research from TD Cowen’s Washington Research Group. Although the speed of approval caught some off guard, the group viewed it as an inevitable outcome following the approval of Bitcoin ETFs earlier this year.
Jaret Seiberg, a member of TD Cowen’s team, noted that the Ethereum ETF approval arrived about six months earlier than expected but was predictable after the SEC approved crypto futures ETFs. Furthermore, the approval of spot ETH ETFs potentially confirms Ether’s status as a non-security, according to industry experts.
Bloomberg ETF analyst James Seyffart has mentioned that the approval of these commodity-based trust shares suggests that the SEC explicitly recognizes Ether as not being a security. Seyffart further suggested that this recognition could extend to other tokens as well, solidifying their classification as commodities.