- Analyst Joshua Frank believes that the current Ethereum bull run may be a result of institutional investors in the Grayscale Ethereum Trust.
- These investors are set to cash in on a trade they set up months ago and are gobbling up Ethereum in massive amounts, pushing the price up.
Ethereum has been on a parabolic bull run in the past few weeks, gaining 49.7% in just the past 7 days. According to one analyst, this surge may be a result of institutional investors in the Grayscale Ethereum Trust (ETHE) who are gobbling up Ethereum in the market at a high rate. These investors set up trades six months ago and are scrambling to cover the Ethereum they used to do it.
The bull case for Ethereum
Joshua Frank, the founder of blockchain data platform The Tie, made the revelation in a recent Twitter thread. According to the analyst, investors in the Trust are seeking to close out a trade they built to profit off the premium value of the Trust’s shares. To do this, the investors need Ethereum and have been accumulating as much as they can in recent days. This might continue for a while, further pushing up the price of Ethereum.
A large number of Grayscale's ETHE investors via private placements received their shares today.
ETH's run the last few days might be in large part due to those institutions buying ETH to cover their loans. https://t.co/qoelppNgzQ
— Joshua Frank (@Joshua_Frank_) January 4, 2021
To invest in the Grayscale Ethereum Trust, institutional investors borrow Ethereum at an annual interest rate of 8%, Frank revealed. They use Ethereum to purchase ETHE shares at the value of the cryptocurrency on the day. However, there is a waiting period before they can receive their ETHE shares. Initially, this period was 12 months, but it has since then reduced to just six.
ETHE shares trade at a value greater than the underlying asset, Ethereum. This premium can sometimes go as high as 100%, Frank revealed. This is what the investors capitalize on, selling their shares to profit from the premium. He stated:
ETHE premium has fallen from 103.2% on December 31st to 20.76% today. ETHE is actually down 16.13% today despite Ethereum breaking $1K. A significant number of private placement investors have their lock-ups ending today and are receiving shares this week. Worth monitoring.
Once the investors sell their ETHE shares and capture the profit, they need to repay their Ethereum loan. This leads them to cryptocurrency exchanges where they purchase Ethereum at the price of the day. With these loans being worth hundreds of millions each, investors need to purchase massive amounts of Ethereum. This is what has been pushing the value of the cryptocurrency to dizzying heights, Frank believes.
2021 could be Ethereum’s best year yet
While Grayscale’s influence on the price of Ethereum is significant, it’s not the only driving factor. The cryptocurrency has continued to gain favor among investors, both retail and institutional. For institutional traders, Ethereum is establishing itself as an alternative to Bitcoin, especially at a time when Bitcoin’s price has shot up to new highs.
Jehan Wu, the CEO of Hong Kong-based Kenetic Capital, believes that Ethereum’s lower price is especially lucrative to Wall Street investors. He recently said:
The ether slingshot has arrived and is playing catchup to big brother bitcoin. While ether hasn’t established a store of value narrative, its relatively low price is becoming irresistible to Wall Street investors drunk on bitcoin gains.
With decentralized finance set to become even bigger in 2021, Ethereum could be on its way to even greater heights. Popular analyst Nicholas Merten recently touted Ethereum as the top project to watch in 2021. As Crypto News Flash reported, the analyst predicts the cryptocurrency will hit $10,000 by 2022.