Grayscale Ethereum ETF Could Risk Depressing Ethereum’s Value, Predicts Kaiko Research Firm


In an unsettling forecast made by research firm Kaiko, the Spot Ethereum ETF introduced by the investment company Grayscale may potentially depress the value of Ethereum (ETH). The firm’s speculation is based on a perceived parallel between the Grayscale Ethereum Trust (ETHE) and Grayscale’s Bitcoin Trust (GBTC).

The potential peril, predicted by Kaiko, lies in the significant selling pressure Ethereum could face from Grayscale’s ETHE as soon as Spot Ethereum ETF trading commences. The precursors of this wave of selling pressure can be found in the fund’s previous three months performance, during which it traded at a discounted rate ranging from 6% to 26%. Kaiko has also pointed out that Grayscale’s ETHE, which currently operates as a closed-end fund, is in the process of being converted to an exchange-traded fund (ETF).

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Possessing more than $11 billion in assets under management (AuM), chances are high for substantial daily average outflows from Grayscale’s ETHE. In the event of Grayscale’s Ethereum ETF reaping outflows similar to those of its Bitcoin ETF, approximately $110 million could exit the fund. This prediction comes in light of the $6.5 billion outflows recorded by Grayscale’s Bitcoin ETF during its debut trading month, representing 23% of the fund’s AuM.

Just as Grayscale’s Bitcoin Trust evolved into an ETF, a similar transformation is expected for Grayscale’s ETHE, possibly leading to similar financial outcomes. The debut month of GBTC trading saw outflows amounting to $6.5 billion, resulting mostly from investors capitalizing on the discount at which they’d purchased the fund. Accordingly, Kaiko believes a repeat scenario could be on the horizon for ETHE.

The significant selling wave seen in Grayscale’s Spot Bitcoin ETF had a substantial negative impact on Bitcoin’s value, causing substantial depreciation on Bitcoin’s price. If Grayscale’s Spot Ethereum ETF faces a similar scenario, a decrease in Ethereum’s value may be on the horizon.

A particularly noteworthy factor contributing to the significant outflows seen in Grayscale’s Bitcoin ETF was the high fee charged by Grayscale’s fund, widely considered to be among the highest imposed by any Bitcoin ETF issuers. Grayscale’s Ethereum ETF might see a reduction in outflows if the asset manager decides to address and adjust its fee structure to maintain competitiveness.

Despite the potential downward pressure, Kaiko remains optimistic about Ethereum’s trajectory. They expect ETH to witness considerable price gains once other Ethereum Spot ETFs start generating remarkable inflows that could counterbalance any outflows seen from Grayscale’s ETHE. Ethereum’s potential price surge is backed by a precedent where Bitcoin’s outflows from Grayscale GBTC were overshadowed by inflows from other Bitcoin ETFs by January’s end.

The proliferation of Bitcoin ETFs saw cryptocurrency reaching new milestones, hitting its all-time price peak in March this year. The emerging Ethereum ETFs similarly hold the power to spike ETH prices, based on the funds’ recorded inflows.

Kaiko further notes that despite possible initial disappointments in terms of inflows, the mere endorsement of these funds has already set a positive tone for ETH as an asset class. This is primarily attributable to the erasure of previous regulatory ambiguities regarding Ethereum’s status, thereby removing a hitherto detrimental influence on its value. For now, Ethereum’s price has staunchly remained above the $3,800 mark. Indeed, the path ahead for Ethereum remains an intriguing one to closely watch.