Grayscale Forges Ahead on Ethereum as SEC Sows Doubts

Grayscale Investments, which runs the biggest spot bitcoin ETF, is seeking to launch a "mini ethereum" trust—a spinoff version of their flagship Ethereum Trust—even as U.S. regulators delay a decision to approve spot ether ETFs and pessimism builds over their future.

Grayscale's filing for their mini ETH trust was filed at the same time as the New York firm's prospectus for converting the Grayscale Ethereum Trust, ticker ETFE, into an ETF. The two vehicles, which if approved would both hold spot Ethereum as opposed to Ethereum futures contracts, would work in conjunction, the company's top legal official wrote in a blog post. If the trusts are converted to ETFs, the mini version would also become an ETF.

"In the case of ETHE and ETH, we call it a “spin-off” because a certain percentage of the Ether underlying ETHE shares would be utilized to ‘seed’ the new Grayscale Ethereum Mini Trust," Grayscale Chief Legal Officer Craig Salm wrote April 23. He said that shares of the mini trust, ticker ETH, "would be distributed proportionally to ETHE shareholders, so that ETHE shareholders maintain their same exposure to Ether—though spread between two products, ETHE and ETH, instead of just ETHE."

The filing came as the Securities and Exchange Commission once again delayed spot ether ETF applications from Grayscale and Franklin Templeton—pushing both of their next deadlines to June. Despite the fact that the regulator approved ten novel spot bitcoin ETFs in mid-January, analysts and executives are pessimistic that the filing will be approved this spring. 

Grayscale has already filed for a Mini Bitcoin Trust, which will have a fee of 0.15%—undercutting the current spot bitcoin ETFs on the market. The firm has said its Mini Bitcoin Trust will be non-taxable for holders of the Grayscale Bitcoin Trust ETF (GBTC), to encourage investors to move to the younger, lower cost vehicle as opposed to fleeing to competitors. GBTC has had outflows every day since launching in early January. According to Salm, the mini ETH vehicle would also have significant tax benefits for ETHE holders. 

Spot Ether Challenges

The Securities and Exchange Commission must decide on whether to approve a slew of spot Ethereum ETF filings in May, yet analysts and executives are pessimistic that the agency will greenlight the vehicles then. Unlike in the months leading up to the spot bitcoin launch, regulators have not substantially engaged with issuers on their filings. 

The Grayscale Ethereum Trust's discount also shows negative investor sentiment about approval, according to etf.com analyst Sumit Roy. 

"Given that the Grayscale Ethereum Trust (ETHE) is currently trading at a hefty 25% discount to its net asset value—a significant increase from 8% in March the market is implying that the odds of a spot ether ETF approval by May aren't very high," he explained. 

Contact Lucy Brewster at [email protected].