Grayscale Ethereum Trust shares plummet as ETH price surges

Analysts believe the plunge in Grayscale Ethereum shares could be the driving force behind Ether’s surging price

In the last two weeks, Grayscale’s Ethereum Trust (ETHE) shares have crashed by 50% whereas Ethereum (ETH) has recorded a 75% upswing in the same period. A long-term play by giant firms could be the reason why shares in the Ethereum Trust have slumped by half as Ethereum moves towards $1,200.

Many institutional investors seemingly borrowed the token to capitalise on the Grayscale Ethereum Trust profit. However, tides have changed and they are now forced to pay the borrowed ETH as Ethereum gains more upward momentum.  ETHE shares are the equivalent of 0.09620794 ETH and trade for $13.80 each. This is almost 21% higher than what the same unit costs as per the spot price.

Joshua Frank of crypto data firm The TIE wrote on Twitter that the odd price action is a result of institutional arbitrage that is steering Ether’s recent gains. Frank advanced that crypto users are purchasing Ether to settle loans used to acquire Grayscale’s ETHE shares.

“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. ETHE was trading at a 100%+ premium to NAV up until Friday, so if you were an institution you could buy at NAV and borrow ETH for ~8%/annum. So institutions and accredited investors borrowed ETH and invested that ETH in-kind in ETHE”, he said.

The shares enjoyed an uptrend spell for over three months soaring from $4.20 at the beginning of the third quarter of 2020 to $25 on December 22–a 500% upswing. The price has since dipped and the shares are currently trading at around $12.

“Many investors who were part of that initial 12-month lock-up receive their ETHE shares this week. Because many borrowed ETH, they have to buy ETH spot to pay back lenders to close their trade. This is likely a large part of the reason ETH had a massive run-up this weekend, why ETHE fell today (despite ETH’s massive run this weekend), and why the premium on ETHE has fallen so drastically.”