Grayscale’s upcoming Ether (ETH) exchange-traded fund (ETF), known as ETHE, could experience significant daily outflows if it follows a similar trend to the Grayscale Bitcoin Trust (GBTC) in its first month as an ETF. Analysts at Kaiko reported that when GBTC transitioned from a closed-end fund to an ETF on January 11, it saw 23% of its assets under management flow out in the first month, totaling $6.5 billion. With ETHE currently having an assets under management (AUM) of $11 billion, if it experiences a similar level of outflows, it could amount to an average daily outflow of $110 million, which is equivalent to 30% of ETH’s average daily volume on Coinbase.
Over the past three months, ETHE has traded at a discount of up to 26% to its net asset value (NAV). Kaiko researchers noted that as it transitions to a spot ETF, it is reasonable to expect outflows or redemptions as this discount narrows. The discount to NAV for GBTC has also narrowed significantly since its conversion to an ETF. Prior to the conversion, it traded at a discount of up to 17%, but it has gradually decreased over time, allowing many investors to exit GBTC at the same or better price they initially invested. As of May 24, it is currently at a discount of 0.03%, a level it has maintained since then.
ETHE’s discount to NAV has also narrowed since the Securities and Exchange Commission (SEC) gave preliminary approval for spot Ether ETFs on May 23, although ETHE has not yet started trading as a spot ETF. On May 1, ETHE traded at a discount of over 25%, but it steadily decreased throughout the month due to speculation about SEC approval for spot Ether ETFs. On May 24, it reached a discount of 1.28%, according to YCharts data.
Kaiko analysts also observed that GBTC’s outflows were surpassed by inflows into other Bitcoin ETFs by the end of January. They concluded that even if Ether ETF inflows are disappointing in the short term, the approval of the ETF has significant implications for ETH as an asset, as it removes some of the regulatory uncertainty that has impacted ETH’s performance over the past year.