Grayscale Ethereum Trust (OTCQX: ETHE) stock is down 2.5% on Thursday. But ethereum, the underlying, was slightly up yesterday. This means that ETHE isn't doing its job of tracking the ethereum price. What this also means is that we shouldn't be using Grayscale as a hedging instrument - or at least we need to accept that it's only going to be an inefficient proxy rather than the real thing itself.
But then this seems to be common with the Grayscale trusts. As we looked at yesterday, the Grayscale Bitcoin Trust: “There's a substantial discount from the GBTC price to the nominal value of the bitcoin holdings. Even that's not a terrible problem if the discount stays static. But even that's not true. The discount varies over time. So Grayscale would be imperfect even as a trading hedge. Maybe still useful, but imperfect….(...)...If Grayscale isn't tracking the bitcoin price - or even if the discount to the objective value is changing - then it's a less than perfect hedge as above. On the other hand it becomes a speculative vehicle in its own right over the existence of bitcoin ETFs and the validation of the sector. Perhaps.”
Grayscale Ethereum Trust stock price from OTC
As we also said back then, the problem is that there's a massive discount between the supposed valuations of the ethereum within ETHE and the market capitalisation of ETHE. This means that tradings and or holdings in Grayscale Ethereum are speculations on the size and or direction of that discount and less so on the objective valuations of the crypto held.
Well, OK, so long as we know we can use the instrument to trade in the right way. But it's also worth nothing that: “ While an investment in the shares is not a direct investment in Ethereum, the shares are designed to provide investors with a cost-effective and convenient way to gain investment exposure to Ethereum. The shares are quoted on OTCQX under the ticker symbol "ETHE." ETHE's investment objective is for its shares (based on Ethereum per share) to reflect the value of the Ethereum held by ETHE, less ETHE's expenses and other liabilities. To date, ETHE has not met its investment objective and the Shares quoted on OTCQX have not reflected the value of Ethereum held by ETHE, less ETHE's expenses and other liabilities, but have instead traded at both premiums and discounts to such value, which at times have been substantial.”
That is, ETHE just isn't very good at achieving its stated goal.
