Ben Strack

The discounts at which investors pay for shares of Grayscale’s bitcoin and ethereum trusts have shrunk slowly but surely, reflecting one way optimism around spot crypto ETF approval.



Shares of the Grayscale Bitcoin Trust (GBTC) were trading about 11.3% below its net asset value Thursday, nearly matching the 11% discount seen on Oct. 20, according to YCharts.com.



Oct. 20 represented the first time it was in that 11% neighborhood since November 2021, when bitcoin’s price hit an all-time high of roughly $69,000. The GBTC discount was as high as about 48% as recently as December 2022, the YCharts <a href="https://ycharts.com/companies/GBTC/chart/#/?calcs=id:discount_or_premium_to_nav,include:true,,&amp;chartId=&amp;chartType=interactive&amp;correlations=&amp;customGrowthAmount=&amp;dataInLegend=value&amp;dateSelection=range&amp;displayDateRange=false&amp;endDate=&amp;format=real&amp;legendOnChart=false&amp;lineAnnotations=&amp;nameInLegend=name_and_ticker&amp;note=&amp;partner=basic_2000&amp;quoteLegend=false&amp;recessions=false&amp;scaleType=linear&amp;securities=id:GBTC,include:true,,&amp;securityGroup=&amp;securitylistName=&amp;securitylistSecurityId=&amp;source=false&amp;splitType=single&amp;startDate=&amp;title=&amp;units=false&amp;useCustomColors=false&amp;useEstimates=false&amp;zoom=ytd&amp;redesign=true&amp;chartAnnotations=&amp;axisExtremes=">data</a> shows.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1718" height="794" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/11/GBTC-discount-to-NAV-chart.jpg?w=1024&amp;h=1024" alt="" class="wp-image-73520" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/11/GBTC-discount-to-NAV-chart.jpg?w=1718 1718w, https://blockworks-co.imgix.net/wp-content/uploads/2023/11/GBTC-discount-to-NAV-chart.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/11/GBTC-discount-to-NAV-chart.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/11/GBTC-discount-to-NAV-chart.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/11/GBTC-discount-to-NAV-chart.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/11/GBTC-discount-to-NAV-chart.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/11/GBTC-discount-to-NAV-chart.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/11/GBTC-discount-to-NAV-chart.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/11/GBTC-discount-to-NAV-chart.jpg?w=80 80w" sizes="(max-width: 1718px) 100vw, 1718px" /></figure>



GBTC is not easily available to everyone. Eligible shares are quoted on the OTC Markets Group, and the value at which those are sold has fluctuated in the form of sometimes steep premiums and discounts.&nbsp;



Bitcoin price drops, for example, have in recent years led to a decline in GBTC demand. This leads to the Trust’s shares trading at substantially lower values compared to the actual worth of its underlying bitcoins.



Recently, industry sentiment has shifted, with many observers growing more confident that the US Securities and Exchange Commission will eventually greenlight an exchange-traded fund (ETF) that directly holds Bitcoin.



Read more: <a href="https://blockworks.co/news/grayscales-gbtc-discount">Traders weigh how to play narrowing GBTC discount</a>



Grayscale is working on converting GBTC to an ETF — a move the firm has said would essentially get rid of the current discount on its shares.&nbsp;



Asset management giant BlackRock filed for a spot bitcoin ETF in mid-June — sending GBTC’s discount from about 42% to as low as about 25% in the span of a month. <a href="https://blockworks.co/news/gbtc-grayscale-sec">The discount substantially shrunk again</a> to roughly 18% in late-August after judges ruled the SEC <a href="https://blockworks.co/news/grayscale-sec-spot-bitcoin-etf">denying GBTC’s conversion to an ETF was unlawful</a> on the grounds it gave.&nbsp;



“The narrowing in discount confirms the increased confidence of investors concerning the possibility for a future conversion of the trust in an ETF,” Fineqia International research analyst Matteo Greco said in a September research note.



The SEC last month <a href="https://blockworks.co/news/sec-grayscale-spot-bitcoin-etf">opted not to appeal Grayscale’s court victory</a>. Also in October, a media report <a href="https://blockworks.co/news/btc-price-spot-bitcoin-etf">falsely claimed the SEC had approved a spot bitcoin ETF</a>, sending bitcoin’s (<a href="https://blockworks.co/price/btc">BTC</a>) price up. Fund issuers have been filing amendments to their proposals, signaling apparent dialogue with regulators.&nbsp;



Read more: <a href="https://blockworks.co/news/bitcoin-etf-price-rally">Is bitcoin’s ETF-fueled rally to $35K premature? Well, maybe</a>



Thus, the discount has remained at levels lower than seen in much of the past few years. Bitcoin’s price was nearly $37,160 at 11:15 pm ET Friday — up nearly 8% in the last week.



While GBTC’s discount has fallen, so too has that of the Grayscale Ethereum Trust (ETHE).&nbsp;



ETHE’s discount hit about 16.4% on Thursday — the lowest since March 2022, YCharts data indicates. This is substantially down from about 56% in June and as high as roughly 34% as recently as September.&nbsp;



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1706" height="802" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/11/ETHE-discount-to-NAV-chart.jpg?w=1024&amp;h=1024" alt="" class="wp-image-73522" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/11/ETHE-discount-to-NAV-chart.jpg?w=1706 1706w, https://blockworks-co.imgix.net/wp-content/uploads/2023/11/ETHE-discount-to-NAV-chart.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/11/ETHE-discount-to-NAV-chart.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/11/ETHE-discount-to-NAV-chart.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/11/ETHE-discount-to-NAV-chart.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/11/ETHE-discount-to-NAV-chart.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/11/ETHE-discount-to-NAV-chart.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/11/ETHE-discount-to-NAV-chart.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/11/ETHE-discount-to-NAV-chart.jpg?w=80 80w" sizes="(max-width: 1706px) 100vw, 1706px" /></figure>



Grayscale moved on Oct. 2 <a href="https://blockworks.co/news/grayscale-eth-trust-ethe-filing-vaneck-proshares">to convert its Ethereum Trust to a spot ether fund</a>.&nbsp;



More recently, BlackRock followed up its bitcoin ETF filing with <a href="https://blockworks.co/news/blackrock-ishares-ether-etf">an ether-focused proposal</a> — following <a href="https://blockworks.co/news/21shares-ark-filing-for-spot-ether-etf">the lead of other fund issuers</a>.&nbsp;



Ether’s (<a href="https://blockworks.co/price/eth">ETH</a>) price was about $2,080 at 3:15 pm ET Friday — up 15% from seven days ago.



“If act one is a spot bitcoin ETF, then act two is a spot Ethereum ETF,” Anchorage Digital president Diogo Mónica said in a Thursday statement. “A spot Ethereum ETF would have a similar impact as a bitcoin counterpart, providing a regulated and accessible wrapper for institutions and consumers to participate in the ETH ecosystem.”



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Grayscale trust discounts keep shrinking — here’s why

Invesco is the latest fund group to pursue an ETF that would hold ether directly.&nbsp;



The fund giant, which manages nearly $1.6 trillion in assets, shared plans for its Invesco Galaxy Ethereum ETF in a Friday filing.&nbsp;



Galaxy Digital Funds is set to to serve as execution agent for the proposed ETF and facilitate the sale of ether by the trust, the <a href="https://www.sec.gov/Archives/edgar/data/1995569/000119312523246762/d470525ds1.htm">disclosure</a> notes.



Unlike various <a href="https://blockworks.co/news/valkyrie-etf-ether-futures-unwind">ether futures ETFs expected to launch</a> in the coming days, the Invesco Galaxy Ethereum ETF would hold ether directly — mirroring other proposals made this month.&nbsp;



<a href="https://blockworks.co/news/21shares-ark-filing-for-spot-ether-etf">Ark Invest and 21Shares revealed plans</a> for a spot ether ETF on Sept. 6. VanEck, which first filed for a spot ether ETF in 2021, also has an active filing in front of the US Securities and Exchange Commission, while Hashdex seeks a fund that would blend ether futures and spot ether exposures.&nbsp;



Read more: <a href="https://blockworks.co/news/ark-invest-etf-battle">Ark anticipates win in US crypto ETF battle with ‘deepest’ suite, COO says</a>



People familiar with the filing by Ark Invest and 21Shares said recent developments suggested it was an opportune moment to start expanding conversations around ether products. That disclosure came about a week after <a href="https://blockworks.co/news/grayscale-sec-spot-bitcoin-etf">Grayscale Investments won a court case against the SEC</a> in what many segment watchers called a victory for the broader crypto space.&nbsp;



Invesco is not new to the digital assets realm.



Perhaps best known for its QQQ ETF that invests in Nasdaq 100 companies, <a href="https://blockworks.co/news/invesco-and-galaxy-team-to-build-suite-of-crypto-etfs">Invesco partnered with Galaxy Digital</a> in September 2021 to create physically backed crypto ETFs.&nbsp;



“We believe the combination of an institutional, crypto native asset management business alongside a global ETF pioneer will drive the entire crypto space forward,” Steve Kurz, Galaxy’s head of asset management, said at the time.&nbsp;



Invesco was <a href="https://blockworks.co/news/bitcoin-etf-invesco-wisdomtree">among the fund groups that filed for a spot bitcoin ETF</a> in June just days after asset management giant <a href="https://blockworks.co/news/blackrock-clout-bitcoin-etf-approval">BlackRock jumped into the race</a>.&nbsp;



<a href="https://blockworks.co/news/us-spot-bitcoin-etf">Though spot crypto ETFs trade in a number of other countries</a>, the SEC has never allowed such funds to launch in the US. The securities regulator on Tuesday <a href="https://blockworks.co/news/sec-decision-date-bitcoin-etf?utm_source=CryptoNews&amp;utm_medium=app">extended its deadline to rule on the Ark 21Shares Bitcoin ETF</a> to Jan. 10.&nbsp;



Spokespeople for Invesco and Galaxy declined to comment.&nbsp;



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Invesco, Galaxy float latest spot ether ETF proposal

More spot ether ETF filings are likely imminent as industry watchers say SEC approval of ether futures and spot bitcoin funds would all but clear the way for such proposed funds.&nbsp;



Firms vying to bring such products to market have signaled in filings they believe Grayscale Investments’ win against the SEC in the DC Circuit Court of Appeals last month helps their cause.



Others agree.



Nate Geraci, president of the ETF Store, commented, “Grayscale is clearly bulldozing a regulatory path for spot crypto ETFs, and other fund companies are happy to jump in behind.”



On Wednesday, Ark Invest and 21Shares revealed it was seeking to launch a fund that would directly hold ether, <a href="https://blockworks.co/news/eth-related-etf-proposals">unlike the recently proposed ether futures ETFs</a>.



Developments over the last weeks and months suggested it was an opportune time to start expanding conversations around ether products, <a href="https://blockworks.co/news/21shares-ark-filing-for-spot-ether-etf">people familiar with the filing told Blockworks</a>.&nbsp;



Fund group VanEck, which first filed for a spot ether ETF in 2021, renewed its effort to offer such a product the same day. &nbsp; &nbsp;&nbsp;



Cboe BZX Exchange — the venue on which the proposed fund would trade — <a href="https://cdn.cboe.com/resources/regulation/rule_filings/pending/2023/SR-CboeBZX-2023-070.pdf">filed</a> forms Wednesday detailing reasons for the SEC to approve the planned offerings. These documents highlight the SEC&#8217;s approval of bitcoin futures ETFs and emphasize that the Chicago Mercantile Exchange (CME) bitcoin futures market is a substantially regulated and sizable market.



The filings add that the regulator’s continued refusal to allow spot bitcoin ETFs is due to “the seemingly conflicting basis that the CME bitcoin futures market is not a regulated market of significant size — an issue Cboe says was “resolved” in the DC Circuit Court of Appeals.&nbsp;&nbsp;



<a href="https://blockworks.co/news/judges-grayscale-sec-ruling">Judges in the Grayscale case ruled</a> that approving bitcoin futures ETFs, but not the conversion of its Bitcoin Trust (GBTC) to an ETF, was “arbitrary and capricious.”



“There’s no question Grayscale’s recent court victory was the primary catalyst in these spot ether ETF filings,” Geraci told Blockworks. “ARK and VanEck were clearly prepared for a favorable Grayscale outcome and quickly pounced on the opportunity to file for spot ether ETFs.”



<h2 class="wp-block-heading">Chance of approval?</h2>



The spot ether ETF proposals are the latest in a long list of crypto funds the SEC must rule on, the decisions on all of which could be connected.



In addition to fund issuers filing for a range of spot bitcoin ETFs in recent months, firms have put planned ether futures funds in front of the regulator in recent weeks.&nbsp;



Read more: <a href="https://blockworks.co/news/sec-consider-ether-futures-etfs">SEC now ready to consider ETH futures ETFs, sources say — but what’s changed?</a>



Bloomberg Intelligence ETF Analyst James Seyffart said during a Thursday webinar that the spot ether ETF filings — in addition to mentioning the Grayscale ruling — point out a <a href="https://blockworks.co/news/surveillance-sharing-bitcoin-etf">surveillance-sharing agreement</a> with Coinbase and call the CME a regulated market — “basically all the things we think are the reasons we’re going to get [a] spot bitcoin [ETF].”&nbsp;



“They’re basically betting that the SEC is not going to be able to figure out a way to deny spot bitcoin ETFs here,” Seyffart said of the issuers filing to launch spot ether products.



If the Grayscale ruling stands and the SEC allows spot bitcoin ETFs to come to market, Geraci argued, the regulator would have a tough time justifying the denial of spot ether ETFs.&nbsp;



“The SEC appears backed into a corner right now and ETF issuers are emboldened to push the envelope,” Geraci added.



Sumit Roy, a senior analyst at ETF.com, said the approval of both a spot bitcoin ETF and an ether futures ETF are approved, a spot ether fund would be &#8220;all but certain.&#8221;



Several industry watchers agree that more spot ether ETF proposals are imminent, and soon.&nbsp;



Seyffart noted that Grayscale could even look to convert its Ethereum Trust (ETHE) to an ETF, but added that is more likely once the firm gets more clarity on the fate of GBTC.    



“As we’ve seen in the case of spot bitcoin ETF filings and ether futures ETF filings, the first filing tends to be followed by others as issuers jockey to get as close to the front of the line as possible,” Roy said.



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Grayscale court victory used in arguments for spot ether ETF

<div id="highlights-block_627d514bd6df0" class="highlights">
 <ul>
 <li>The Australia spot bitcoin and ether ETFs launched by ETF Securities and 21Shares marked trading volumes of $656,000 and $415,000, respectively, on their first day</li>
 <li>Industry watchers say big investors on the hunt for crypto ETF exposure already bought similar products in Europe or Canada</li>
 </ul>
 
</div>



 The first spot bitcoin and ether ETFs in Australia launched Thursday amid widespread crypto market sell-offs, leading industry watchers to note their lower trading volumes compared to similar debuts in Canada.&nbsp;



The 21Shares Bitcoin ETF (EBTC) and the ETFS 21Shares Ethereum ETF (EETH) booked trading volumes of $656,000 and $415,000, respectively.



<a href="https://cms.blockworks.co/first-australian-spot-bitcoin-ether-etfs-to-go-live-next-week/" target="_blank" rel="noreferrer noopener">EBTC and EETH</a>, which track the price of bitcoin and ether in Australian dollars, are fully backed by respective digital assets held in cold storage by Coinbase. Each fund had roughly $9 million in assets at the end of Thursday.



Meanwhile, the Cosmos Purpose Bitcoin Access ETF (CBTC) invests in crypto through Purpose Investments’ Bitcoin ETF (BTCC), which launched on Canada’s Toronto Stock Exchange in February 2021. CBTC traded about $454,000 in total daily volume Thursday.



Though a 21Shares spokesperson told Blockworks that the EBTC and EETH took “the lion’s share of trading” in Australia on Thursday, Bloomberg Intelligence Senior ETF Analyst Eric Balchunas called the debut “shockingly timid” in a tweet — especially compared to BTCC.&nbsp;&nbsp;



On the first day of trading, the non-currency hedged BTCC.B and BTCC.U traded $209 million (CAD) and $52 million (USD), respectively, according to a Purpose Investments spokesperson.



Canada-based Purpose Investments’ Bitcoin ETF — the world’s first such product backed by physically settled bitcoin — crossed $1 billion (CAD) of assets a month after its February 2021 debut. The 3iQ CoinShares Bitcoin ETF, which launched in Canada in April the same year, reached $1 billion (CAD) after just three weeks on the market.



The Australian launches come as bitcoin’s price recently dipped below $28,000 for the first time since 2020. It traded around $29,000 at about 2 pm ET on Thursday according to Blockworks data — down 27% in a week. Ethereum’s price stood at about $1,960, down roughly 33%.



The crypto markets have also been rattled in recent days by the depegging of TerraUSD (UST) from the US dollar. UST traded around 37 cents Thursday afternoon.&nbsp;&nbsp;&nbsp;



“Crypto was and is a bull market plaything for most investors, [especially] the kind that would use an ETF for exposure,” Balchunas <a href="https://twitter.com/EricBalchunas/status/1524722087084105728" target="_blank" rel="noreferrer noopener">tweeted</a>. “Bigger fish to fry for them [right now]. The die hard hodl-ers more likely own direct. That said, long-term these prob take root after next big rally.”



Dave Nadig, financial futurist at ETF Trends and ETF Database, told Blockworks he was not surprised by the trading volumes for the newcomer ETFs. 



“Given that most investors of size can trade on whatever market they like…coming to market with products already available on larger exchanges is going to most likely draw only small local investor interest,” Nadig said. “If you were a hedge fund, you wouldn’t be waiting for [Australia] to launch. You’ve already bought in the EU or [Canada] if you needed exchange-listed exposure.”



Still, Nadig added, spot crypto launched in the US would be “a different animal.”&nbsp;



The SEC has not approved any of the spot bitcoin ETF proposals it has reviewed. But the US’ first-ever bitcoin futures ETF, the ProShares Bitcoin Strategy Fund (BITO), became the second-highest ETF ever in opening day volume <a href="https://cms.blockworks.co/first-bitcoin-futures-etf-nears-1b-on-first-day-of-trading/" target="_blank" rel="noreferrer noopener">when it launched in October</a>, trading nearly $1 billion.



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spot ether etf