The Ethereum Trust of Grayscale Investment, the fund manager, had seen a catastrophic plummet of 50% within the past two weeks. This, however, seemingly has nothing to do with Ethereum’s price, as Ether managed to rally by 75% in that same period of time.
ETHE And ETH No Longer As Tethered To Each Other
Each share of Ethereum Trust (ETHE) represents exactly 0.09620794 Ether apiece. As it stands now, these shares are being traded for around $13.80, which is still a 21% premium over ETH’s spot price.
It should be noted, however, that ETHE’s share prices have been quite a chaotic rollercoaster ride. The coin saw a 500% surge between October and December of last year, going from just $4.20 to a whopping $25 a share. Now, however, these shares have halved themselves in value, with the 5th of January reporting lows as little as $12.
Joshua Frank: It Could Be Institutional Players’ Fault
Joshua Frank stands as the CEO of TheTie, a crypto data aggregator of note. Frank has opted to go to Twitter in order to try and explain why ETHE saw the massive drop that it did.
A large number of Grayscale's ETHE investors via private placements received their shares today.
ETH's run the last few days might be in large part due to those institutions buying ETH to cover their loans. https://t.co/qoelppNgzQ
— Joshua Frank (@Joshua_Frank_) January 4, 2021
Frank’s argument is that Ether’s recent gains could be attributed to institutional arbitrage. According to Frank, this could probably be pegged on investors buying up ETH in order to close up the loans that were used to purchase ETHE shares, to begin with.
Frank suggests that many investors of the Ethereum Trust had opted to borrow Ethereum at an annual interest rate of approximately 8%. From there, they used these borrowed assets to purchase shares of ETHE, in turn. They did so at an equivalent of the ETH spot price in order to leverage the monumental price premium opportunity that was presented thanks to ETHE. In late December, ETHE was seen trading at a 100% premium of its value over Ether back in December.
A Good Bit Of Business
With many of these investors’ shares’ lock-up period expiring, Frank has concluded that these investors have opted to sell their ETHE share holdings, using that same fund to purchase Ether on the spot markets. This would close their positions entirely and give them a nice profit, in turn.
According to Frank, this could be the driving force behind ETHE’s massive drop being in tandem with ETH’s massive rise, as institutional players are selling ETHE, driving the value down, and using that to buy ETH, driving the value up. It’s basic business, and a shrewd strategy, to say the least. With luck, however, this won’t throw ETH into a violent correction somewhere in the future.