On June 12, 2020, a Reddit string alerted the crypto community that Grayscale Ethereum Trust investors are currently paying a 750% premium for $ETH exposure. This implies that investors are currently procuring ETH at an implied price of $2,095.
The Grayscale Ethereum Trust is essentially an investment vehicle backed by ETH and run by the Grayscale Investments Corporation. However, Grayscale Investments is famous for their Grayscale Bitcoin Trust, which holds a significant portion of all BTC in circulation.
As a matter of fact, on June 2, 2020, Tradingview recorded that the demand for the trust has grown so much that ETHE had actually appreciated by 600% since the start of 2019.
Now, according to recent reports, shares of ETHE sky-rocketed due to the significant increase in demand for ETH from a wider market.
The magnitude with which ETHE prices gained highlights the fact that ETH, the top-rated altcoin in the world, has been outperforming BTC since May 2020.
With a 750% premium, no group of investors is presently being charged more than the ones involved with the Grayscale ETH Trust.
Why Do Investors Choose Grayscale Ethereum Trust?
Although it has become much easier to acquire ETH over recent years, many investors may be hesitant to use spot exchanges such as Coinbase and Bitrue due to concerns about security.
The Grayscale Ethereum Trust has consequently emerged as a leading alternative for investors looking to gain exposure to ETH. It is projected that close to $75M will be unlocked from the trust by Q4 of 2020, a figure that will be close to $100M by the end of the year.
From the chart above, it can be observed that Grayscale‘s products are mostly generated and driven by institutional investors. Some of these inflows are likely viewed on the premium as investors can sell at a premium on Over the Counter (OTC) platforms after their holdings are locked up.
The Premium Is Unlikely to Last
The ETHE trust is designed to specifically cater to investors who are willing to pay more for an asset (compared to its market price), because of the stringent regulatory oversight they get by acquiring such assets – which can potentially assist them in evading risk.
Due to the structure of the product, which is backed by ETH held in reserves, the trust has a glaring drawback: a heavy premium over the spot market.
Fortunately for retail investors, the inflated premium currently being levied is unlikely to last. The ETHE premium fluctuates regularly according to market forces, and the ongoing influx of supply will likely result in a drop in the ETHE price, leading to lower premiums.
