Prominent asset manager Grayscale Investments is set to launch spinoffs of their Grayscale Ethereum Trust’s (ETHE) and Grayscale Bitcoin Trust (GBTC) exchange-traded funds (ETF). Following inquiries by market spectators and potential investors, Bloomberg analyst James Seyffart has provided much insight into the nature and operation of these spinoffs.
Grayscale ETF Spinoff Based On 90-10% Sharing Format, Seyffart Says
On Friday, James Seyffart published a thread on social media platform X, discussing vital information about Grayscale’s ETF spin-offs Grayscale Ethereum Mini Trust (ETH) and Grayscale Bitcoin Mini Trust (BTC), which are based on the company’s ETHE and GBTC’s funds respectively.
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An ETF spinoff occurs when a portion of an ETF’s holdings is separated into a new, independent ETF. In this process, shareholders of the original ETF, i.e. EHTE and GBTC, automatically receive shares of the new ETF, i.e. ETH and BTC. However, the amount each shareholder receives is proportional to their holdings in the original ETF and the sharing formula of the spinoff.
Doing a thread on the situation for @Grayscale‘s spinoff for $ETHE & $ETH because I’ve gotten about a million questions on it. The mechanics will be essentially the same for $GBTC & $BTC spinoff. If you own 1,000 shares of $ETHE, you should receive 1,000 shares of mini $ETH. 1/ pic.twitter.com/Er66mj5L46
— James Seyffart (@JSeyff) July 19, 2024
Seyffart explains that Grayscale spinoffs are based on the same mechanics, whereby if you have 1000 shares of ETHE or GBTC, you will receive 1000 shares of ETH or BTC. Nevertheless, in terms of value, Seyffart states that an initial $1000 worth of ETHE or GBTC will decrease to $900, while the shares in the new ETFs accumulate a value of $100, implying that Grayscale is employing a 90-10% sharing formula.
Furthermore, the Bloomberg analyst highlighted that the spinoff for ETHE is programmed for July 23, while that of GBTC will occur on July 31. However, to be eligible for share distributions from the new ETFs, investors should have purchased shares in these original funds before or on the record dates for these spin-offs, which are July 18th for ETHE and July 30 for BTC. Thereafter, investors will have to purchase shares of ETH as a separate, independent fund.
Seyffart notes the record date for ETHE is already past, stating the low price of the ETF at the start of trading was due to the spinoff process on that day. The analyst warns investors to anticipate a similar fate for GBTC on July 30.
Importance Of Grayscale’s ETF Spinoffs
Spinoffs are generally conducted for various reasons but with the aim of satisfying a more focused demand. According to Grayscale, their latest spinoffs aim to offer investors the choice of buying a similar product but at lower fees. For context, the proposed ETH spin-off will be accompanied by a sponsor fee of only 0.15% which is quite low in comparison to ETHE’s 2.5% fee.
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Currently, both ETHE and GBTC continue to trade at $29.71 and $59.68, respectively, with a market gain of 3.31% and 5.82% in the last 24 hours.