Grayscale Trust About to Implode? 

Three years ago, the “white knight” for Crypto enduring the 2018-2020 Bear Market was a crypto ETF that would help bring institutional support (and demand) to the crypto space, with invested funds helping create more demand for backing assets. 

Unfortunately, due to the way that ETFs are structured with fees and other costs built in, this works on the way up, but not so well on the way back down and the price compresses lower. 

In fact,  The Grayscale Ethereum Trust (ETHE) now trades at a record 59.39% discount relative to the price of Ethereum (ETH).

In this chart, the orange line is ETHUSD spot, and the weekly candles are the Grayscale ETHE stock price. The price is only a “suggestion” of the underlying spot value of ETH and does not accurately reflect the spot price. ETHE is currently being sold for $4.81/share; what happens if ETH/USD drops from $1200 to $600? Chances are that the change in ETHE will not be linear. 

At one point the fund actually traded at a significant premium relative to ETH, it has continuously been at a discount compared to market prices since November 2021.

And the Bitcoin ETF is having similar issues, trading at a 45.17% discount relative to BTC/USD. 

Grayscale has been battling the SEC since June for the right to convert its cryptocurrency funds into an ETF, enabling them to be traded on public stock markets—which could improve their liquidity significantly since they are only available OTC, or “over the counter.” 

The news comes amid speculation over the financial health of Grayscale and its parent company Digital Currency Group (DCG).

In December, Dutch cryptocurrency exchange Bitvavo claimed in a blog post that DCG is “experiencing liquidity problems due to the current turbulence in the crypto market” and that DCG “has suspended repayments until this liquidity issue has been resolved.”

For now, steer clear of Grayscale trust instruments and focus on accumulating the spot currency into self-custody.