Summary ETHE is a fund that aims to replicate the spot price of ETH, net of fees and liabilities. What immediately stands out is a distinctive sponsor fee of 2.5% and an unusual staking process. The fund had structural issues before the uplisting, which, after July 2024, have been limited. Performance has aligned with peers, as has volatility, while the premium/discount and the bid/ask spread have been reduced. It remains a volatile solution linked to ETH-USD and the crypto market. When I think about a solution to gain non-on-chain exposure to ETH-USD—meaning without the need to manage wallets or private keys—the first name that comes to mind is Grayscale Ethereum Trust ETF (ETHE). This is due to its long-standing presence in the sector, dating back to 2017, and improved with its 2024 uplisting from OTC markets on the NYSE. Today, however, it still presents an unusual structure, with some characteristics that distinguish it from other solutions listed in traditional finance, including some other ETH ETFs. This makes the comparison interesting, especially given the fact that the sponsor fee has remained significantly higher than that of its peers at 2.5% annually. Introduction and Definition ETHE aims to replicate the spot price of ETH, net of fees and liabilities, without leverage or derivatives. With an AUM of ~$4.43 billion and approximately ~1,063,338 ETH held and custodied by Coinbase Custody, it uses the CoinDesk Ether Price Index (ETX) as its official benchmark, where each share represents a fraction of ETH. ETHE - Profile (Seeking Alpha) Its sponsor fee of 2.50% per year is quite high compared to spot ETH ETFs. This is paid in Ether, resulting in a mechanical erosion of exposure. The amount of ETH per share decreases over time due to the payment of fees. The trust does not provide yield on ETH, at least according to the prospectus, but ETFs in custody have a gross staking rewards of 4.00%, which results in net staking rewards of 3.06%, derived from approximately 76.46% staked. ETHE - quant rating (Seeking Alpha) Today the premium/discount is 0.00%, thanks to the post-July 2024 efficiency process, when an uplisting was carried out. Historically, however, there have been strong distortions, with a historical maximum discount of -60%, resulting in a historical average discount of ~24% over long periods. What Does ETHE Do? ETHE - ETH: performance (Seeking Alpha) When evaluating ETHE’s performance over longer timeframes, a severe discrepancy can be observed compared to the underlying asset. I do want to make one clarification, however: for comparative consistency, it would be more appropriate to narrow the analysis to the post-July 2024 period . Even doing so, it becomes evident that the performance gap is significantly reduced. ETHE - ETH: performance (Seeking Alpha) What remains an open question, however, is the contribution of integrated staking. This would theoretically be a positive factor, considering that on ETH-USD it is a process the investor would have to replicate manually . The problem is that such high sponsor fees nullify the propulsive effect that ETHE should have. At the same time, these very high fees also play a negative role in terms of long-term price appreciation, especially after drawdowns, when the crypto market cyclically alternates sharp and rapid rallies. The application of the fee is like an accounting of the loss, which in theory works against the price. To this is added the classic volatility of the crypto market. Not by chance, for Seeking Alpha, the risk grade is F, considering a standard deviation of 84%, and an annualized volatility of 74%. ETHE - risk grade (Seeking Alpha) Who Is ETHE For? Considering these results, and above all the uplisting, ETHE becomes a potentially competitive solution. It could, however, be more appreciable for tactical exposures and rapid rotations in the short/medium term. Meanwhile, it becomes more difficult, because of the sponsor fee, to be competitive compared to other solutions if the intention is to accumulate ETH or to have a long-term exposure to the underlying. In the same way, it should be remembered that both returns and, naturally, volatility are attributable to those of the underlying ETH-USD. This makes ETHE a tool poorly suited for those seeking defensive or low-volatility portfolio solutions. On the contrary, it could be associated with more speculative positions, or in any case closer to the growth stock market. ETHE - momentum grade (Seeking Alpha) It is interesting to note how the crypto market, and therefore ETHE as well, tends more and more over time to move closer to the US big tech market in terms of characteristics, which makes it very sensitive to the same catalysts. ETHE - Nasdaq 100 (Seeking Alpha) Risks Net of the risks related to the structure, which can be summarized in the fact that, theoretically, even after the uplisting, ETHE continues to have a potential fee drag issue (which we have discussed), with a consequent potential erosion of the ETF per share. Here I would rather focus instead on another element: the underlying. When we choose to position ourselves on ETHE, we do so with the view that the underlying ETH-USD can bring benefits within a portfolio. ETH - USD: profile (Seeking Alpha) It should therefore not be forgotten, however, that the underlying is highly cyclical , like the entire crypto market, and alternates fairly evident phases of structural expansion with well-defined phases of contraction. These are and seem to be driven by external variables, such as the Bitcoin halving cycle itself, which indirectly also influences altcoin prices. This makes ETHE a derivative asset, potentially a high beta of Bitcoin, which in turn behaves like a high beta of the Nasdaq . Peer Comparison Its structure places it directly in competition with the wave of ETFs that arrived in 2024 on ETH. In this sense, a nice peer table can be created, which I, personally, summarize as follows: ETHE - peer table (Seeking Alpha) Among the competitors, there is the same “mini” version proposed by Grayscale itself, with a decidedly more competitive TER. What can be observed is that ETFs, in addition to costing less, have a slightly higher performance, which is counterintuitive if one considers that ETHE should have a staking structure in support. ETHE - peer performance (Seeking Alpha) Pros and Cons ETHE apparently has some fairly evident advantages and distinctive traits: Operational efficiency post-uplisting, with active creation/redemption, price aligned to NAV, and very reduced bid/ask spread Apparently active staking on the ETH held, which covers the sponsor fees of the fund. But there are also some negative points. The high expense ratio is a drawback, which leads to the erosion of ETH per share. This article answers three main questions about ETHE: How is ETHE structured, and how does it reflect Ethereum prices? How does ETHE compare to other Ethereum ETFs? What are its benefits and drawbacks? How can ETHE fit into a portfolio? Editor's note: This article is intended to provide a general overview of the ETF for educational purposes only and, unlike other articles on Seeking Alpha, does not offer an investment opinion about the ETF.
