Grayscale’s Ethereum ETF Faces Potential $110M Daily Outflow in First Month: Kaiko Report

Ethereum ETF Faces Potential $110M Daily Outflow

Grayscale’s yet-to-launch spot Ether (ETH) exchange-traded fund (ETF) could experience significant outflows, averaging $110 million per day in its first month, according to a report by Kaiko. This projection is based on the performance of Grayscale’s Bitcoin Trust (GBTC) when it converted to an ETF earlier this year.

Key Takeaways

  • Grayscale’s Ethereum ETF could see daily outflows of $110 million in its first month.
  • The projection is based on the performance of Grayscale’s Bitcoin Trust (GBTC).
  • ETHE has an AUM of $11 billion, and similar outflows would represent 30% of ETH’s average daily volume on Coinbase.
  • The ETF’s discount to NAV is expected to narrow, leading to potential outflows.
  • Regulatory approval of the ETF could remove some uncertainty around ETH.

Background

Grayscale’s Bitcoin Trust (GBTC) converted from a closed-end fund to an ETF on January 11. In the first month, 23% of its assets under management (AUM) flowed out, totaling $6.5 billion. Kaiko analysts suggest that if Grayscale’s Ethereum ETF (ETHE) follows a similar pattern, it could see average daily outflows of $110 million.

Financial Implications

ETHE has an AUM of $11 billion. If it experiences outflows similar to GBTC, this would amount to $110 million of average daily outflows, or 30% of ETH’s average daily volume on Coinbase. Over the past three months, ETHE has traded at up to a 26% discount to its net asset value (NAV). Once it becomes a spot ETF, outflows or redemptions are expected as this discount narrows.

Market Dynamics

GBTC’s discount to NAV sharply narrowed after its conversion to an ETF. It traded at up to a 17% discount before its conversion but has since narrowed, allowing many holders to exit at either the same price they got in or better. As of May 24, it was trading at a 0.03% discount, according to YCharts.

ETHE’s discount has also narrowed since the Securities and Exchange Commission (SEC) gave the initial nod to spot Ether ETFs on May 23. On May 1, ETHE traded at an over 25% discount, which steadily narrowed to a 1.28% discount by May 24.

Future Outlook

Kaiko analysts noted that GBTC’s outflows were surpassed by inflows into other Bitcoin ETFs by the end of January. They concluded that even if Ether ETF inflows disappoint in the short term, the approval has important implications for ETH as an asset. It removes some of the regulatory uncertainty that has weighed on ETH’s performance over the past year.

Conclusion

While the potential for significant outflows from Grayscale’s Ethereum ETF in its first month is a concern, the long-term regulatory approval could provide a more stable environment for ETH. Investors and market watchers will be keenly observing how the ETF performs once it launches.

Sources