Spot Ethereum ETFs are about to start trading. On Wednesday, most of their issuers posted their updated S-1 filings with the Securities and Exchange Commission (SEC), and a key thing stood out: Grayscale Ethereum ETF (ETHE).
Grayscale, one of the biggest companies in the crypto industry, seems to believe that its ETFs should have a premium. In this case, the company has placed a whopping 2.50% expense ratio for its fund.
In contrast, other companies like Blackrock, Invesco, and Franklin Templeton have set a ratio of 0.25% or below.
Therefore, if you invest $100k in the Grayscale Ethereum Trust, you will pay a whopping $2,500 in fees alone. In contrast, other funds will cost you just $250, which is a reasonable fee.
ETHE is even more expensive than what most hedge funds and private equity companies charge their institutional investors. These companies usually charge an administration fee of just 2%.
Furthermore, as previously mentioned by BanklessTimes, ETHE investors will also miss out on the staking yield that investors typically receive. Data indicates that Ethereum stakes can generate up to a 3.25% annual staking yield.
Grayscale is repeating the same error it made with its Bitcoin ETF. It is maintaining an expense ratio of 1.50%, resulting in 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 think Grayscale is taking this approach because it anticipates that some of its investors will not sell and switch to other funds. Additionally, its GBTC fund still holds over 273k coins, making it the second-largest fund in the industry.
The Grayscale Ethereum Trust currently holds approximately $10 billion in assets. Therefore, even if 50% of these funds are withdrawn, the company would still earn a fee of over $125 million for Grayscale.
Some investors will avoid selling their ETHE due to the implications of capital gains tax (CGT). In the long run, however, the implications of the GBTC fund will outweigh the impact of CGT.
