Ethereum
ETHE Might Be the Worst Ether Fund
Ethereum Spot ETFs are about to begin trading. On Wednesday, most of their issuers filed their updated S-1 filings with the Securities and Exchange Commission (SEC), and one key one stood out: the Ethereum Grayscale ETF (ETHE).
Grayscale, one of the largest companies in the cryptocurrency space, seems to think its ETFs should command a premium. In this case, the company has set a whopping 2.50% expense ratio for its fund.
In contrast, other companies such as Blackrock, Invesco and Franklin Templeton have set a ratio of 0.25% or less.
Therefore, if you invest $100,000 in the Grayscale Ethereum Trust, you will pay a whopping $2,500 in fees alone. In contrast, other funds will only cost you $250, which is a reasonable amount.
ETHE is even more expensive than what most hedge funds and private equity firms charge their institutional investors. These firms typically charge an administration fee of just 2%.
Furthermore, as before mentioned According to BanklessTimes, ETHE investors will also not benefit from the staking yield that investors typically receive. Data indicates that Ethereum stakes can generate up to 3.25% in annual staking yield.
Grayscale is repeating the same mistake it made with its Bitcoin ETF. It maintains a 1.50% expense ratio, which is leading to significant outflows. The iShares Bitcoin Trust (IBIT) has surpassed it in terms of assets, and Fidelity’s FBTC is expected to do the same.
I believe Grayscale is taking this approach because it anticipates that some of its investors will not sell and move to other funds. Additionally, its GBTC fund still holds over 273,000 coins, making it the second largest fund in the industry.
The Grayscale Ethereum Trust currently holds approximately 10 billion dollars in assets. Therefore, even if 50% of these funds were withdrawn, the company would still earn fees of more than $125 million for Grayscale.
Some investors will avoid selling their ETHE due to the capital gains tax (CGT) implications. In the long run, however, the consequences of the GBTC fund will outweigh the capital gains tax impact.