Ethereum ETF by Grayscale Records $1.15B Loss in First Three Days of Trading

The commencement of US spot Ethereum exchange-traded funds has unfolded in an intriguing manner. Following the approval by the SEC, 8 out of 9 ETFs commenced trading on Tuesday. Among these, one ETF experienced substantial inflows, while Grayscale’s converted fund, ETHE, encountered significant outflows. Let’s delve into the reasons behind Grayscale, a management firm, facing such outflows.

Trading for US ETH ETFs kickstarted on July 23, with all 8 funds witnessing inflows surpassing $1 billion on the inaugural day. However, Grayscale’s ETHE ticker, previously trading on the OTC market, began experiencing notable outflows from day one. Grayscale’s Ethereum trust, originating as a private placement in 2017 and transitioning to public trading on the OTC markets in 2019, also introduced an ETF under the ticker ETHE on NYSE on July 23. While the new ETFs attracted substantial inflows, Grayscale’s existing ETF encountered outflows amounting to $1.16 billion over the past three days.

Experts speculate that if the current outflow trend persists, the ETF could deplete all its Ethereum holdings in less than a month. This could be attributed to ETHE’s high fee of 2.5%, whereas Grayscale’s new mini trust ETH ETF imposes the lowest fee among the fresh ETFs at 0.15%.

Grayscale’s latest ETF witnessed inflows of $119.1 million over the last three days. Combining the ETHE outflow data with Ethereum’s 7% price decline, Grayscale’s assets under management plummeted from $10 billion to $7.5 billion within the same timeframe.

Presently, Grayscale is encountering a daily net outflow of approximately $385 million. Should this trajectory persist, ETHE could exhaust all its Ethereum reserves in less than a month. Another contributing factor to this outflow could be the absence of discounts in the older ETF ETHE, coupled with its high fee structure. Consequently, investors find it advantageous to divest from the older ETF and migrate their investments to the new offerings.

Besides Grayscale, five other ETF issuers utilize Coinbase crypto exchange as their custodian, while VanEck opts for Gemini, and Fidelity manages its Ethereum internally. In the initial two days, Coinbase witnessed an inflow of around 160,930 ETH. However, due to ETHE’s outflows, funds worth $811 million exited Coinbase. The influx of 113,119 ETH into the Coinbase exchange exerted selling pressure in the market, contributing to the observed downturn in Ethereum’s price.

Considering these dynamics, the Ethereum ETF launch appears to exemplify a classic scenario of “selling the news.” Investors are capitalizing on opportunities, elucidating why Grayscale’s ETHE is experiencing substantial outflows. Conversely, all new ETH ETFs, including Grayscale’s mini trust, are observing noteworthy inflows. The prevailing circumstances suggest that Grayscale will persist in facing significant outflows from its older ETF, sustaining selling pressure on Ethereum. The unfolding events will ultimately determine the subsequent course of action.