Grayscale ETH ETF may not mirror huge outflows like Bitcoin launch

Quick Take

While Grayscale’s Bitcoin Trust saw immense outflows following its conversion to a spot Bitcoin ETF, a potential Ethereum ETF conversion may play out differently. Speculation indicates a 75% likelihood that the long-awaited Ethereum ETF could be approved by May 23, according to Bloomberg analysts.

However, Grayscale announced detailed information about the Grayscale Ethereum Mini Trust ahead of any potential approval of an ETH ETF, whereas the equivalent Bitcoin Mini Trust didn’t launch until after its launch.

Recently, Grayscale submitted a registration statement on Form S-1 for a new spot Ethereum ETF called Grayscale Ethereum Mini Trust, with the proposed ticker symbol “ETH.” Additionally, they filed an Information Statement on Schedule 14C for their existing Grayscale Ethereum Trust (ETHE), detailing the mechanics of how ETHE would seed the new mini-trust through a spin-off of a certain amount of Ethereum.

According to Grayscale’s website,

“The 14C describes the mechanics of how ETHE would seed Grayscale Ethereum Mini Trust through a spin-off of a certain amount of ETHE’s Ether to ETH, with shares of ETH to be distributed pro rata to ETHE’s shareholders, again upon regulatory approval.”

Grayscale believes that the approval of the Grayscale Ethereum Mini Trust would be a net positive for existing ETHE shareholders, as they would maintain the same exposure to Ethereum with the added benefit of a lower fee averaged across both products.

The next critical deadline is May 23, when the SEC must approve the listing exchange’s Form 19b-4. Additionally, ETHE’s Form S-3 and ETH’s Form S-1 need to be declared effective before they can list on NYSE Arca, respectively. Grayscale has reassured current ETHE holders that no action is required on their part before the spin-off.

The launch of the Grayscale Ethereum Mini Trust alongside ETHE could result in fewer outflows due to lower fees and the fact that no action is required from investors. This contrasts with the launch of Bitcoin ETFs, where GBTC experienced $17.6 billion in outflows due to the absence of a similar mini-trust. GBTC currently has an expense ratio of 1.5%, significantly higher than other issuers, which are around 0.20%. This higher expense ratio has been a major factor contributing to the significant outflows.

However, amendments to the filings, including the removal of staking of the Ethereum under management, may give credence to the argument that outflows may still be considerable.