Prominent asset manager Grayscale Investments is set to launch spinoffs of its Grayscale Ethereum Trust’s (ETHE) and Grayscale Bitcoin Trust (GBTC) exchange-traded funds (ETFs). After inquiries from market watchers and potential investors, Bloomberg analyst James Seyffart provided a wealth of insight into the nature and operation of these spinoffs.
Grayscale ETF Spinoff Based on 90-10% Share Format, Says Seyffart
On Friday, James Seyffart posted a wire on the social media platform
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An ETF split occurs when a portion of an ETF’s holdings are 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 stake in the original ETF and the split’s distribution formula.
Making a thread about the situation for @Grey scalespin-off for $ETHE & $ETH because I’ve gotten about a million questions about it. The mechanics will be essentially the same for $GBTC & $BTC spin off. If you own 1,000 shares of $ETHEyou should receive 1,000 mini shares $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 hold 1,000 shares of ETHE or GBTC, you will receive 1,000 shares of ETH or BTC. However, in terms of value, Seyffart claims that an initial $1,000 worth of ETHE or GBTC will shrink to $900, while shares in the new ETFs accrue a value of $100, implying that Grayscale is employing a 90-10% sharing formula.
Furthermore, the Bloomberg analyst noted that the ETHE spinoff is scheduled for July 23, while the GBTC spinoff will take place on July 31. However, to be eligible for the share distributions from the new ETFs, investors would have to have purchased shares of these original funds before or on the record dates for these spinoffs, which are July 18 for ETHE and July 30 for BTC. After that, investors will have to purchase shares of ETH as a separate and independent fund.
Seyffart notes that ETHE’s record high has already passed, stating that the ETF’s low price at the start of trading was due to the split process that day. The analyst warns investors to anticipate a similar fate for GBTC on July 30.
Importance of Grayscale ETF spinoffs
Spinoffs are often carried out for a variety of reasons, but they are intended to meet a more targeted demand. According to Grayscale, its latest spinoffs aim to offer investors the option to purchase a similar product, but with lower fees. To put this into context, the proposed ETH spinoff will be accompanied by a sponsor fee of just 0.15%, which is quite low compared 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 market gains of 3.31% and 5.82% in the last 24 hours.