Read on Twitter
1/10) A thread about the Great $ETHE Unlocking on Jan 5
Grayscale’s ETHE product became a reporting company thus the lockup drops from 12 to 6mo. This results in an unusually high unlock volume on 1/5/21 as ETHE NAV buyers from Jan-July ’20 all unlock at the same time.
Grayscale’s ETHE product became a reporting company thus the lockup drops from 12 to 6mo. This results in an unusually high unlock volume on 1/5/21 as ETHE NAV buyers from Jan-July ’20 all unlock at the same time.
2/10) This amounts to an unlocking of 116M shares purchased with 1.2M ETH. Tradeable shares will triple.
https://www.sec.gov/Archives/edgar/data/1725210/000119312520211399/d918957d1012g.htm
https://www.sec.gov/Archives/edgar/data/1725210/000119312520211399/d918957d1012g.htm
3/10) We know $ETHE trades at a large premium and since there are no redemptions, the unlock's sell pressure should drop the $ETHE premium, right? Many $ETHE holders already started selling last week in anticipation of this. But not so fast… https://twitter.com/JSeyff/status/1341458546450444290
4/10) Let’s think through the 3 types of $ETHE buyers at NAV:
1.$ETHE hodler
2.$ETH hodler
3.Arbitrageurs
1.$ETHE hodler
2.$ETH hodler
3.Arbitrageurs
5/10) $ETHE hodlers don’t buy $ETH spot but want longer term $ETH exposure. They buy into NAV using cash. >80% of Grayscale’s inflows are in-kind so let's assume ETHE hodlers are 10% of the coming unlock. They will not sell their ETHE position in the short term.
6/10) $ETH hodlers already had long exposure but purchased $ETHE in-kind for the added premium. They will sell ETHE & use all the proceeds to buy ETH. Some may recycle that ETH back into ETHE but that’s not relevant for this thread. I estimate this to be 25% of the unlock.
7/10) Arbitrageurs are most of the $ETHE unlock. Let's say 65%. They seek an arb trade w/o $ETH exposure so borrow ETH w leverage & buy in-kind at NAV. The borrow is a short & ETHE is a long. They will sell ETHE, buy just the borrowed ETH on spot & pocket the premium.
8/10)
So $ETH hodlers will buy back ETH with all the proceeds of their 29M $ETHE shares (25%). Arbs will just buy back the initial ETH borrowed (783K ETH based on 65%). This amounts to $1B of ETH purchases in Jan/Feb from the Great ETHE Unlock.
So $ETH hodlers will buy back ETH with all the proceeds of their 29M $ETHE shares (25%). Arbs will just buy back the initial ETH borrowed (783K ETH based on 65%). This amounts to $1B of ETH purchases in Jan/Feb from the Great ETHE Unlock.
9/10) Back to the premium... despite the $ETHE selling pressure, the $1B of $ETH purchases will drive ETH up which drives ETHE demand up and thus we will likely see a counterintuitive outcome of a higher ETH price, higher ETHE price and higher ETHE premium.
10/10) It's counterintuitive so many will be skeptical. This Grayscale effect is easier to see in $GBTC, since it has a longer history, as @MrBenLilly breaks down in this post: https://hackernoon.com/grayscales-gbtc-pump-effect-means-2021-will-start-slow-0gu340l
