"Smart Money" is Paying Huge Premiums for ETH

in LeoFinance •  4 months ago 

In 2018/19 we have heard much chatters about institution adoption of cryptocurrencies but there never were clear signs of institutional adoption in the past 2 years. However, things might be changing and for the past few days to a week, I begun to see some signs of institutional FOMO or at least "Smart Money" moving in to cryptocurrencies.

The Grayscale Ethereum Trust is a rather exclusive asset. According to the factsheet, only accredited investors are allowed to purchase shares of the trust and the minimum investment amount is US$ 25,000. In addition to that, there is also an exorbitant 2.5% annual fee.

In case you are unaware, accredited investors are those with annual income in excess of $200,000 for the last two years (or $300,000 together with spouse) or net worth in excess of $1 million, excluding the value of primary residence and certain indebtedness secured by such primary residence. Basically, they are people who are relatively well-off.

Grayscale Ethereum Trust factsheet

The wealthy people typically are more better connected to the financial network. They are more likely to have friends working in hedge funds, investment firms and etc. As a result, these people usually will have access to certain "tips" that common people like us do not. Further to that, most of them also have a wealth manager to help them manage their money, which again represent the "Smart Money".


Paying Huge Premiums for ETH

According to the factsheet, each share of the Grayscale Ethereum Trust (ETHE) represents 0.09501602 ETH. Looking at the price of ETHE today, we can see that price of $99.50 is way higher than what each share of ETHE represent. Each ETHE share is actually just backed by $24.13, this means that ETHE buyers are paying a huge premiums of 312%! Hence, based on current ETH price of $270, the buyers are pricing ETH at $1,113!

ETHE premiums over ETH

This bullish accumulation of ETHE did not just started today. In fact, the divergence of ETHE and ETH price appreciation started since 4th Feb as seen in the chart below.

ETHE vs ETH

What does this mean? It means either the accredited investors are really dumb to buy ETHE at such a huge premiums. Or they know something that we do not know and are entering into crypto through this trust. One might ask why do they not buy ETH directly? There can be various reasons, if an institution is buying into ETHE, it is likely because their investment policies still do not allow direct exposure into cryptocurrencies. Hence, the next best alternative is the Grayscale Trust. It can also be possible that the whales simply find it too troublesome to manage their own private keys, hence the trust is more attractive to them.

Another thing to point out is that this premium is not just for ETH, there is also a 30% premium for BTC and 94% premium for ETC. Is this bullish or bearish? You tell me :)

BTC premiums

ETC premiums


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Hey cool stuff! I didn’t know about this trust or the organized campaign to get accredited investors in crypto.

I have been watching Eth make it’s rally and I was wondering when that was going to happen. It seems it has been ignored way too long as btc makes its way back to 10k and eth lingered under 200. Etc has been fun to trade lately as well but that is like a side bet for fun while things start to recover.

Looking for a couple weeks of correction after this puff dies down and then maybe we will see a real ethereum run.

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I am also waiting for some kind of retracement to buy more. Seems like it is happening right now 🙂

I think investors with 25,000 USD at least aren't willing to pay such a huge premium. I suspect the reason can be short covering. (Short sellers want or must close earlier positions, that's why they buy at any price possible.)
Shorting Ether was a very popular trade in the last 1-2 years.

Do you mean shorting ETHE or ETH itself? Buying ETHE will not be able to cover your ETH shorts as the underlying ETH cannot be redeemed by holding ETHE. Just fyi 😉

If they shorted ETHE and they must close the position, they have to buy it back at all cost. (Short covering.)

We are certainly going to see much more adoption expecially with the hype of the Bitcoin halving mantra and how it would affect price. Many wopuld want to have a fair share in cryto before the March halving date. 2020 is really a great year for cryptos.

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I have the same feeling too 👍

Nice work, my mind is always blown when people are willing to pay these huge premiums. Hopefully we can take advantage.

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Indeed. That must mean something right? 😉

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