• Grayscale’s upcoming Ether ETF might see daily outflows of $110 million.

• Ethereum Trust’s discount to NAV has narrowed ahead of the ETF launch.

Grayscale’s yet-to-launch spot Ether ETF could face substantial daily outflows if it mirrors the performance of its Bitcoin Trust conversion to an ETF. In recent research,  Kaiko analysts have estimated daily outflows at $110 million, which accounts for 30% of Ether’s average daily trading volume on Coinbase.

This projection is in line with the 23% asset outflow of Grayscale Bitcoin Trust (GBTC) in the first month after its conversion to the ETF back in January.

Potential Impact on the Ethereum Market

Grayscale Ethereum Trust (ETHE) currently has over $11 billion in assets under management. If the outflow rate of ETHE is to be similar to that of GBTC, then this implies that $110 million could be flowing out of the ETF daily. If this outflow materializes it could affect the overall Ethereum market, especially exchanges like Coinbase where this volume is traded.

The Grayscale Bitcoin Trust’s conversion to an ETF led to a 23% decline in its AUM in the first month with the asset base dropping to $6.5 billion from the initial $8.3 billion. This trend is expected to continue with the Ethereum Trust, thus resulting in a similar level of outflow. It could also have significant effects on Ethereum’s liquidity and the price stability, especially in the early period following the ETF launch.

Discount to NAV and Market Reactions

In the past three months, ETHE has been trading at a discount to its NAV with a maximum discount of 26%. This trend changed on May 23 when the SEC expressed some form of approval for spot Ether ETFs; the discount started to close and reached a 1.28% discount on May 24th. This is an indication that market players are moving their trades in preparation for the ETF in the market.

However, the discount of GBTC to NAV decreased notably after changing its structure to an ETF. Before the transition, GBTC was trading at a 17% discount, which opened up again, but many investors were able to exit at good prices. This shows that by May 24th, GBTC was trading at a slight 0.03% discount to NAV, and thus, the market had high confidence in the ETF structure.

Regulatory Developments and Market Stability

This approval of spot Ether ETFs by the SEC has ramifications for Ether to the extent that it is now being viewed as an asset. Lack of regulatory guidance has been a major concern among investors, and the launch of Ether ETFs has addressed this issue. The short-term reactions may be outflows, but the long-term effects will be positive for Ethereum: more legitimacy and fewer legal problems.

Similarly, the Grayscale Ethereum Trust has also changed its custodian arrangements and has appointed Coinbase as the new custodian for the Trust’s assets. This agreement supersedes the prior custodian agreement and takes effect at the opening bell of trading on NYSE Arca. Furthermore, BNY Mellon will also assume certain functions of the Trust as the Trust’s transfer agent, effective from the date of termination of the prior service agreement. As of this writing, Eth is currently trading at $3,748.67, registering a decline of 4%.