Grayscale's Ethereum ETF Could Experience Significant Outflows: Analysis

Grayscale's upcoming spot Ether (ETH) exchange-traded fund (ETF) might face substantial outflows in its first month, according to analysts at Kaiko. They suggest that if the ETF follows a similar pattern to Grayscale Bitcoin Trust (GBTC), it could see around $110 million in average daily outflows, representing approximately 30% of ETH's average daily volume on Coinbase.

GBTC to ETF Transition: Outflows and ETHE Discount Concerns

GBTC, upon its conversion to an ETF on January 11, experienced outflows amounting to 23% of its assets under management (AUM) within the first month, totaling $6.5 billion. Given ETHE's AUM of $11 billion, a similar magnitude of outflows could be expected.

Grayscale's ETHE has traded at up to a 26% discount to its net asset value (NAV) in the past three months. As it transitions into a spot ETF, this discount is likely to narrow, potentially triggering outflows or redemptions.

SEC Approval Sparks Narrowing Discounts: GBTC and ETHE Rally Post-ETF Conversion

GBTC's discount to NAV significantly narrowed after its ETF conversion, from up to 17% before conversion to just 0.03% as of May 24. Similarly, ETHE's discount has already begun to narrow since the SEC's initial approval of spot Ether ETFs on May 23.

On May 1, ETHE traded at an over 25% discount before steadily narrowing over the month amid speculation the SEC would approve spot Ether ETFs, then quickly reached a 1.28% discount on May 24, YChartsdatashows.

ETHE’s year-to-date discount to NAV quickly narrowed amid ETF approval speculation, narrowing again after approvals. Source: YCharts

Kaiko analysts highlight the importance of the SEC's approval of Ether ETFs in reducing regulatory uncertainty surrounding ETH as an asset. Despite potential short-term disappointments in ETF inflows, this approval could positively impact ETH's performance in the long run.

Grayscale's Ethereum ETF could face substantial outflows in its initial month, following the pattern observed with GBTC's conversion to an ETF. The narrowing of discounts to NAV and regulatory approvals for Ether ETFs suggest significant implications for ETH's future performance.