Fund manager Grayscale Investments’ stakes in Ethereum Trust fell 50% over the past 14 days, despite Ethereum gaining 75% over the same period.
The ETHE shares each represent 0.09620794 of an ether and are currently trading for $ 13.80 – a premium of around 21% over the ETH spot price.
Grayscale’s ETHE shares were on a roller coaster ride, rising around 500% from $ 4.20 in early October to trading at $ 25 on December 22nd. Shares have since fallen 50%, hitting a local low of $ 12 on Jan. 1 5.
Joshua Frank, the CEO of crypto data aggregator TheTie, took to Twitter to offer a theory that explains the unusual price movement.
Frank argued that institutional arbitrage could fuel Ether’s recent gains, speculating that investors are buying ETH to close down loans used to purchase stakes in Grayscale’s Ethereum Trust.
He suggested that many Ethereum Trust investors borrow Ethereum at an annual interest rate of around 8% before using the borrowed assets to purchase ETHE shares at the equivalent of the spot price of Ethereum, in order to take advantage of the arbitrage opportunity that comes up from the historical price premium of ETHE – traded with ETHE at the end of December with a premium of 100% compared to Ether.
After the lockdown on many investors’ shares has expired, Frank concludes that ETHE investors are now selling their shares and buying ether on the spot markets to close their positions and make a profit.
“A large number of Grayscale ETHE investors through private placements received their shares today. The operation of ETH for the past few days could in large part be due to these institutions buying ETH to cover their loans. “
He added, “This is probably a big part of the reason ETH had a massive run-up this weekend, why ETHE fell today (despite the massive run of ETH this weekend), and why the premium for ETHE is so has decreased drastically. “
It is unlikely that the expiration of the lockdown on ETHE shares will be the sole trigger for Ether’s recent upward momentum. Chicago Mercantile Exchange announces plans to launch ETH futures in February and the successful launch of Phase 0 of Eth2.