Prominent asset manager Grayscale Investments is preparing to launch derivatives of its Grayscale Ethereum Trust (ETHE) and Grayscale Bitcoin Trust (GBTC) exchange-traded funds. Following inquiries from market watchers and potential investors, Bloomberg analyst James Seyfart has provided plenty of insight into what these funds are and how they will operate.
The Grayscale ETF sub-fund is based on a 90-10% share format, Seyfart says.
On Friday, James Seifart published an article string On social media platform X, we discussed vital information about Grayscale’s ETFs, Grayscale Ethereum Mini Trust (ETH) and Grayscale Bitcoin Mini Trust (BTC), which are based on the company’s ETHE and GBTC funds respectively.
Related reading: BlackRock beats Grayscale to become world’s largest Bitcoin fund with $20 billion in AUM
An ETF spin-off occurs when a portion of an ETF’s holdings is separated into a new, independent ETF. In this process, shareholders of the original ETF, i.e. EHTE and GBTC, automatically receive shares in the new ETF, i.e. ETH and BTC. However, the amount each shareholder receives is proportional to their holdings in the original ETF and the formula for participating in the spin-off ETF.
I am making a topic about the situation. @the colour greyBranch of $ Ethereum & Ethereum Because I’ve gotten about a million questions about this. The mechanics will be basically the same for $GBTC & Bitcoin Subsidiary. If you own 1,000 shares of $ EthereumYou must receive 1000 shares of penny stock. Ethereum. 1/ pic.twitter.com/Er66mj5L46
— James Seyff (@JSeyff) July 19, 2024
Seyfart explains that Grayscale’s subsidiaries are based on the same mechanics, where if you have 1,000 shares of ETHE or GBTC, you get 1,000 shares of ETH or BTC. However, in terms of value, Seyfart notes that the initial $1,000 worth of ETHE or GBTC will be reduced to $900, while the new ETFs will accumulate $100 worth of shares, meaning Grayscale is using a 90-10% equity formula.
Furthermore, the Bloomberg analyst highlighted that the ETHE spinoff is scheduled for July 23, while the GBTC spinoff will occur on July 31. However, in order for investors to be eligible for the share distributions from the new ETFs, they must have purchased shares in these original funds before or on the record dates for these spinoffs, which are July 18 for ETHE and July 30 for BTC. After that, investors will have to purchase ETH shares as a separate, standalone fund.
Seifert points out that ETHE’s registration date has already passed, suggesting that the ETF’s low price at the start of trading was due to the spin-off that day. The analyst warns investors not to expect a similar fate for GBTC on July 30.
The Importance of Grayscale ETFs
Spin-offs are generally done for different reasons but with the goal of meeting a more focused demand. According to Grayscale, the recent spin-offs are intended to give investors the option to purchase a similar product but with lower fees. In context, the proposed ETH spin-off would come with a custodial fee of just 0.15%, which is very low compared to ETHE’s 2.5% fee.
Related Reading: Related Reading: Bitwise CIO Bullish on Ethereum ETFs Fueling Rally to Record Highs Above $5,000
Currently, both ETHE and GBTC continue to trade at $29.71 and $59.68 respectively, with market gains of 3.31% and 5.82% over the past 24 hours.