Grayscale, a prominent cryptocurrency investment firm, currently holds a substantial amount of Ethereum (ETH) that it acquired at discounted prices during previous market downturns. The company’s Ethereum Trust is eagerly awaiting a decision from the US Securities and Exchange Commission (SEC) on whether it can be transformed into an exchange-traded fund (ETF). If the ETF proposal is rejected, Grayscale may have an excess of ETH that it can sell for profit.
The SEC’s decision on the ETH ETF is expected to be made this week, although it is considered a relatively minor event. Grayscale has experienced various market cycles and has often traded at a discount compared to the broader crypto market due to low user interest.
Investments in Grayscale’s Ethereum Trust have proven to be profitable. However, the company has not disclosed its plans for these holdings, which serve as collateral for the tradable shares of the trust. Speculation among users is rife regarding a potential sale or another form of transformation for the funds.
The timing of the ETF decision coincides with a price rally that has propelled the price of ETH to $3,647.41. This rally is seen as an early indication that the SEC may finally approve ETH after years of deliberation on whether it should be classified as an unregistered security.
Despite the rally, the ETHE-wrapped asset continues to trade at a discount. The over-the-counter (OTC) traded fund has seen a rally of over 23%, reaching $28.71. Since Grayscale holds 10% of crypto assets for each ETHE share, the equivalent price of ETH is $2,800.
It is common for Grayscale’s funds to trade at a discount, with intermittent periods of premium prices compared to the broader crypto market. During the recent rally, the OTC market responded swiftly with a nearly vertical climb.
Grayscale’s Ethereum Trust currently holds more than 2.9 million ETH tokens, with a total value of $10.94 billion after the latest market rally. The company’s portfolio is one of the largest in the crypto industry, although it is challenging to track due to being distributed across multiple small addresses.
All of Grayscale’s ETH holdings are liquid and not staked or tied up in decentralized finance. The company has been consistently profitable since late 2020.
In the event of an ETF approval, the same ETH holdings will serve as the basis for the new product as the exchange-traded trust undergoes transformation.
Some of Grayscale’s ETH was acquired during market lows, with ETH reaching as low as $90 during some crashes. Additionally, in 2019, Grayscale purchased over 226,000 ETH at an average price of $212.
There are two possible scenarios in the event of an ETF approval. The first is that the ETF proposal is dismissed or delayed, and both Grayscale’s fund and the ETF continue to operate as usual. The second scenario is that ETH continues to experience a bullish climb, potentially reaching $6,000 during the summer months. In this case, some early investors may choose to sell their ETH and realize their gains.
However, new buyers would have to purchase ETH at a significantly higher price. The Ethereum market has benefited from low selling pressure, as a considerable amount of ETH is locked or used in decentralized finance. Grayscale has the ability to directly sell actual coins on the market, most likely through Coinbase, its primary channel for onboarding and selling.
It is important to note that the ETF approval is not guaranteed, as Grayscale recently withdrew one of its product requests for a derivative ETF from the SEC. Grayscale has also used some of its ETH holdings to flow into its Litecoin exchange-traded trust, which has gained popularity as an early mainstream crypto investment tool.
