Grayscale Ethereum Trust to convert to Spot ETF
Grayscale Investments, in partnership with NYSE Arca, has submitted an application to the U.S. Securities and Exchange Commission (SEC) seeking approval to transform the Grayscale Ethereum Trust (ETHE) into a spot Ethereum exchange-traded fund (ETF).
The Grayscale Ethereum Trust currently stands as the world’s largest ether investment product, managing almost $5 billion in assets. When launching a new crypto ETF, regulatory authorization is typically sought from the exchange that lists the ETF’s shares, rather than the sponsor itself.
Similar to Grayscale’s Bitcoin fund, the Grayscale Ethereum Trust is the largest Ethereum investment vehicle globally, accounting for 2.5% of all circulating ETH.
The conversion into a spot ETF has been the long-term plan for the Grayscale Ethereum Trust since its launch in 2019. Presently, ETHE shares trade at a significant 30% discount compared to the underlying ETH held by the trust. While the trust’s ETH holdings are valued at approximately $5.14 billion, its shares total only around $3.6 billion.
Grayscale also filed for a new exchange-traded fund tracking ether futures, as seen in a U.S. Securities and Exchange Commission (SEC) filing on September 19.
Grayscale proposed the listing and trading of shares for the Grayscale Ethereum Futures Trust ETF under the New York Stock Exchange Arca Rule 8.200-E. This proposal aligns with the provisions of the Securities Exchange Act of 1934 and a rule change submitted by NYSE to the SEC.
The regulation follows a slightly different pathway to approval as compared to most of the previously permitted bitcoin futures ETFs. Approved ETFs from issuers like ProShares, Valkyrie and VanEck were filed under the Investment Company Act of 1940.
Grayscale previously filed for a separate ether futures ETF under the Investment Company Act of 1940. Grayscale Advisors, also known as the “sponsor” in the filing, manages the ETF.
Grayscale’s filing comes after a U.S. court ruled that the SEC was wrong in rejecting its application for a spot bitcoin exchange-traded fund (ETF). The court found that the SEC’s denial lacked sufficient explanation for treating bitcoin futures ETFs differently from spot bitcoin ETFs.
While it’s improbable that the judges will directly instruct the SEC to approve such funds, a victory for Grayscale could prompt the agency to seek other grounds for denying the applications. In an extreme scenario, the SEC might even consider reversing its approval of Bitcoin futures ETFs.