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ETHE shares started to plummet on December 24, when it lost over 18% within 24 hours while Ether had seen a drop of just 3% within the same period.
Grayscale has seen its ETHE shares plummet by 50% in 14 days while Ether on the other hand has continued its bullish run, gaining over 75% rise within the same time period.
Grayscale’s ETHE shares started a bull run in the early stages on October 2020, gaining almost 500% in value, pushing its price from $4.20 at the start of the month and tapping above $25 on December 22. This journey this year has been a bumpy one for Grayscale’s ETHE shares as its local low at $12 on January 5, signaled a 50% fall in just four months.
Each ETHE share in fund manager Grayscale Investments Ethereum Trust represents 0.09620794 of an Ether each and are currently trading for $13.80, a figure roughly 21% above the spot price of ETH
Possible Reasons for Crush
Grayscale Ethereum Trust (OTC: ETHE) is a fund that allows traditional investors to invest in a non-traditional asset which is Ether. Its ETHE shares started to plummet on December 24, when it lost over 18% within 24 hours while Ether had seen a drop of just 3% within the same period.
An expert in the crypto market has linked Graysacle’s ETHE shares crush to “a long-term arbitrage play from institutional investors.” Joshua Frank, CEO of crypto data analytics firm TheTie has revealed that institutional arbitrage has been a major factor for Ethereum’s recent surge, stating that most of the purchase of Graysacle’s Ethereum Trust shares by investors was through ETH loans which have a yearly interest of 8%.
These investors then purchased ETHE shares with the borrowed ETH assets at the equivalent of Ethereum’s spot price, enjoyed ETHE’s historic price premium which was over 100% above Ether in December and are now looking to opt-out after the good run. According to Frank, Graysacle’s ETHE investors are now cashing out on their shares while at the same time, buying Ether on the market spots “close out their positions” alongside bagging a profit.
Frank noted that a large percentage of Grayscale’s ETHE investors received their shares on January 7, through private placements. “ETH’s fine run the last couple of days might be largely dependent on those institutions buying ETH to cover their loans,” he added.
Grayscale Ethereum Trust also underwent a 9-for-1 stock split on December 17, 2020. Some crypto experts believe that the stock split could have thrown investors into a state of confusion as to the intrinsic value of ETHE’s shares. This notion has however been rebuffed by other experts, claiming that Grayscale Ethereum Trust was doing extremely well before the December 17 split and has since fallen.
The price of Ether, the token of the Ethereum network at press time, had spent the last 24 hours hovering around the $1,100 mark and is currently pushing towards its previous all-time high of roughly $1,400.