Ethereum ETF is officially listed. What are the differences from Bitcoin ETF?

Compiled by: Vernacular Blockchain

The Ethereum ETF was launched on July 23. The market is ignoring some dynamics in the ETH ETF that are not present in the BTC ETF. In this article we will focus on flow forecasts, ETHE unwinding and the relative liquidity of ETH:

1. Fee structure

ETFETF’s fee structure is similar to that of BTC ETF. Most providers waive fees for a specific period to help build assets under management (AUM). Similar to the BTC ETF, Grayscale maintains its ETHE fees at 2.5%, an order of magnitude higher than other providers. The key difference this time is the introduction of Grayscale’s mini-ETH ETF, which has not been previously approved among BTC ETFs.

Mini Trusts are a new ETF product from Grayscale with an initial disclosed fee of 0.25%, similar to other ETF providers. Grayscale's idea is to charge lazy ETHE holders a 2.5% fee while directing more active and fee-sensitive ETHE holders to their new product, rather than directing funds to lower-priced ETHE ETFs such as Blackrock's ETHA ETF. Fee products. After other providers slashed Grayscale's 25 basis point fee, Grayscale has pulled back and reduced the fee for mini trusts to just 15 basis points, making it the most competitive product. On top of that, they transfer 10% of ETHE AUM to the mini trust and give away this new ETF to ETHE holders. This transfer is done on the same basis and is therefore not a taxable event.

The result is that outflows from ETHE will be more modest than from GBTC, as holders will only have to transition to mini-trusts.

2. Liquidity

Now let’s look at liquidity. There are many estimates of ETF liquidity, some of which we highlight below. Normalizing these estimates yields an average estimate of around $1 billion per month. Standard Chartered provided the highest estimate at $2 billion per month, while JPMorgan had a lower estimate of $500 million per month.

Luckily, we have the help of Hong Kong and European ETPs, as well as the closing of ETHE discounts to help estimate liquidity. If we look at the AUM decomposition of Hong Kong ETPs, we draw two conclusions:

1) The relative AUM of BTC and ETH ETPs, BTC is overweight relative to ETH, with a relative market capitalization of 75:25, and the ratio of AUM is 85:15.

2) The ratio of BTC to ETH in these ETPs is relatively constant and consistent with the ratio of BTC market cap to ETH market cap.

Looking at Europe, we have a larger sample to draw from – 197 crypto ETPs with a total AUM of $12 billion. After data analysis, we found that the AUM distribution of European ETPs is basically consistent with the market capitalization of Bitcoin and Ethereum. Solana’s allocation is disproportionately high relative to its market cap, primarily at the expense of “other crypto ETPs” (i.e. any other crypto asset that isn’t BTC, ETH, or SOL).

Solana aside, a pattern is starting to emerge - the AUM distribution of BTC and ETH globally roughly reflects a market cap-weighted portfolio.

Given that the outflow of GBTC triggered a “sell the news” narrative, it is important to consider the potential outflow of ETHE. In order to model potential outflows of ETHE and its impact on price, it is necessary to look at the percentage of ETH supply in the ETHE instrument.

After adjusting for Grayscale mini-seed funding (10% of ETHE AUM), the proportion of ETH supply to total supply in the ETHE instrument is similar to the proportion of GBTC at launch. It’s unclear how much of GBTC outflows are rotations rather than exits, but if we assume a similar ratio of rotation flows to exit flows, then ETHE outflows would have a similar impact on price as GBTC outflows.

Another key piece of information that most people overlook is ETHE’s premium/discount to Net Asset Value (NAV). ETHE has been trading within 2% of face value since May 24, while GBTC first traded within 2% of face value on January 22, just 11 days after converting to an ETF. The approval of the spot BTC ETF and its impact on GBTC is gradually being priced in by the market, and ETHE’s discounted trading relative to NAV has been widely heralded through the GBTC story. By the time the ETH ETF goes live, ETHE holders will have two months to exit ETHE at around face value. This is a key variable that will help curb ETHE outflows, especially exit flows.

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