Grayscale faces $485 million withdrawals as new ether ETFs see $1 billion in trading volume on first day.
TakeAway Points:
- The $9 billion Ethereum Trust offered by Greyscale is up against fierce competition from recently launched spot ether ETFs from Fidelity, BlackRock, and other investors.
- Spot ether ETFs had over $1 billion in volume on the first trading day, and Grayscale’s ETHE had $485 million in redemptions.
- To appeal to various investment sectors, Greyscale offers the highest (2.5%) and lowest (0.15%) management fees among ether ETFs.
Grayscale’s New Ether ETFs
On Tuesday, the U.S. market saw the debut of the first spot ether exchange-traded funds (ETFs), marking a significant milestone for the crypto industry. These ETFs will invest directly in ether, the cryptocurrency used in the Ethereum network, allowing investors to buy ether similarly to how they purchase stock and bond index funds. Grayscale, a unit of Barry Silbert’s Digital Currency Group, has converted its $9 billion ether trust into an ETF, now offering two ether ETFs. However, Grayscale faces stiff competition from financial giants like Fidelity Investments, Franklin Templeton, BlackRock, and Invesco, who have also launched their own spot ether ETFs.
Market Reaction and Initial Performance
The launch of these ether ETFs saw a robust market response, with over $1 billion in trading volume on the first day. JPMorgan analysts estimated net sales of $104 million. Despite this influx, Grayscale’s Ethereum Trust (ETHE) experienced significant redemptions, with $485 million in outflows. JPMorgan attributed these outflows to investors switching to cheaper alternatives or leveraging the ETF conversion for increased liquidity. Grayscale’s ETHE charges a management fee of 2.5%, significantly higher than its competitors, whose fees range from 0.19% to 0.25%. Grayscale has also introduced a budget-friendly option, the Grayscale Ethereum Mini Trust (ETH), with a fee of 0.15%, the lowest among the new ETFs.
Competitive Landscape and Challenges
Grayscale’s struggle with competition is not new. In the bitcoin ETF market, the firm saw outflows of nearly $18.7 billion in the first seven months after converting its bitcoin trust to an ETF, primarily due to its high management fee of 1.5%. In contrast, BlackRock’s iShares bitcoin ETF, with a fee of 0.25%, has overtaken Grayscale in assets.
Grayscale’s David LaValle emphasized that ETHE remains a “trusted, efficient tool for investors” and highlighted its annual return of 61% since becoming publicly quoted in June 2019. LaValle also noted that the $1 billion trading volume on the first day is a testament to the industry’s support for the Ethereum ETP ecosystem.
Market Sentiment and Future Outlook
Despite the initial success, market sentiment around ether ETFs is mixed. Anthony Pompliano, CEO of Professional Capital Management, pointed out that Ethereum’s narrative is less clear than Bitcoin’s, which is often referred to as “digital gold.” Mike Novogratz, CEO of Galaxy Digital, estimated that ether ETF flows would be about 20% of those for bitcoin ETFs in the first six months.
Vivien Wong of HashKey Capital expressed concerns about Grayscale’s potential selling pressure and ether’s inflation rate, which could counteract the positive effects of new inflows. Citi and Gemini have varied inflow estimates, ranging from $3 billion to $5.4 billion in the first six months, citing the lack of staking and Bitcoin’s first-mover advantage as limiting factors.
