What are the differences between the ETH ETF and the BTC ETF as the ETH chain ETF is officially listed?

Author: @asxn_r

Compilation: Plain Language Blockchain

ETH ETF was launched on July 23. The market ignored some of the dynamics of ETH ETF, which do not exist in BTC ETF. In this article, we will focus on following the traffic forecast, the delisting of ETHE, and the relative liquidity of ETH:

1. Fee Structure

The fee structure of ETFs is similar to BTC ETF. Most providers waive fees for a specific period to help accumulate Assets Under Management (AUM). Similar to BTC ETF, Grayscale maintains its ETHE fees at 2.5%, an order of magnitude higher than other providers. The key difference this time is the introduction of Grayscale's mini ETH ETF, which was not previously approved in BTC ETFs.

Mini Trust is a new ETF product launched by Grayscale, with initial disclosed fees of 0.25%, similar to other ETF providers. Grayscale's idea is to charge lazy ETHE holders a 2.5% fee, while guiding more active and fee-sensitive ETHE holders to their new product, instead of directing funds to low-cost products such as Blackrock's ETHA ETF. After other providers cut Grayscale's 25 basis points fee, Grayscale pulled back and lowered the Mini Trust's fee to only 15 basis points, making it the most competitive product. In addition, they transferred 10% of ETHE AUM to the Mini Trust and gave this new ETF to ETHE holders as a gift. This transfer was done on the same basis and is not a taxable event.

As a result, the outflow of ETHE will be milder than GBTC, as holders only need to transition to mini-trusts.

2, Liquidity

Now let's look at Liquidity. There are many estimates regarding the Liquidity of ETFs, some of which we highlight below. After standardizing these estimates, the average estimate is around $1 billion per month. Standard Chartered Bank provides the highest estimate at $2 billion per month, while JPMorgan's estimate is lower at $500 million per month.

Fortunately, with the help of Hong Kong and Europe ETPs, as well as the closure of ETHE discounts, we can estimate Liquidity. If we look at the AUM breakdown of Hong Kong ETP, we come to two conclusions:

In the relative AUM of BTC and ETH ETPs, BTC is overweight relative to ETH, with a ratio of 75:25 relative to market capitalization, and a ratio of 85:15 in AUM.

2. The proportion of BTC and ETH in these ETPs is relatively constant and consistent with the ratio of BTC Market Cap and ETH Market Cap.

Looking at Europe, we have a larger sample to refer to - 197 encryption ETPs, with a total AUM of 120 billion US dollars. After data analysis, we found that the distribution of AUM for European ETPs is basically consistent with the Market Cap of BTC and ETH. The allocation of Solana is relatively high compared to its market capitalization, mainly at the expense of "other encryption ETPs" (i.e. any other encryption assets other than BTC, ETH, or SOL).

Leaving aside Solana, a pattern is emerging - the global distribution of AUM for BTC and ETH roughly reflects a portfolio weighted by Market Cap.

Considering the outflow of GBTC has triggered a 'sell the news' narrative, considering the potential outflow of ETHE is important. To simulate the potential outflow of ETHE and its impact on price, it is necessary to look at the percentage of ETH supply in the ETHE tool.

After adjusting the Grayscale Mini Seed Fund (10% of ETHE AUM), the proportion of ETH supply in the ETHE tool to the total supply is similar to the proportion at the launch of GBTC. It is not clear how much of the outflow from GBTC is rotation rather than exit, but if we assume that the proportion of rotation flow to exit flow is similar, then the impact of ETHE outflow on price is similar to the outflow of GBTC.

Another key piece of information that most people overlook is the premium/discount of ETHE relative to Net Asset Value (NAV). Since May 24, the trading price of ETHE has been within 2% of face value, while GBTC traded within 2% of face value only 11 days after converting to ETF on January 22. The approval of Spot BTC ETF and its impact on GBTC is gradually being priced in by the market, and the discount trading of ETHE relative to NAV has already been widely anticipated through the GBTC story. When the ETH ETF goes live, ETHE holders will have two months to exit ETHE near its face value. This is a key variable that helps to contain the outflow of ETHE, especially the outflow of exiting holders.