Prominent asset manager Grayscale Investments is set to launch spin-offs of their Grayscale Ethereum Trust’s (ETHE) and Grayscale Bitcoin Trust (GBTC) exchange-traded funds (ETF). After questions from market watchers and potential investors, Bloomberg analyst James Seyffart has provided significant insight into the nature and operation of these spin-offs.
Grayscale ETF spinoff based on 90-10% share size, says Seyffart
On Friday, James Seyffart published one wire on social media platform
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An ETF spin-off occurs when part of the holdings of an ETF is split into a new, independent ETF. In this process, shareholders of the original ETF, i.e. EHTE and GBTC, will automatically receive shares of the new ETF, i.e. ETH and BTC. However, the amount each shareholder receives is proportional to his holdings in the original ETF and the spin-off sharing formula.
Make a thread about the situation for @Grayscale‘s spin-off for $ETHE & $ETH because I’ve gotten about a million questions about it. The mechanics will be essentially the same $GBTC & $BTC spinoff. 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 mechanism, where if you have 1000 shares of ETHE or GBTC, you will receive 1000 shares of ETH or BTC. Nevertheless, Seyffart states that in terms of value, an initial $1000 worth of ETHE or GBTC will drop to $900, while the shares in the new ETFs will reach a value of $100, implying that Grayscale is using a 90-10% sharing formula.
Moreover, the Bloomberg analyst highlighted that ETHE’s spin-off is scheduled for July 23, while that of GBTC will take place on July 31. However, to qualify for stock distributions from the new ETFs, investors would have had to purchase shares in these original funds before purchasing. or on the record dates for these spinoffs, namely July 18 for ETHE and July 30 for BTC. After that, investors will have to purchase shares of ETH as a separate, independent fund.
Noting that the record date for ETHE has already passed, Seyffart argues that the ETF’s low price at the start of trading was due to the spin-off process on that day. The analyst warns investors to expect a similar fate for GBTC on July 30.
Importance of Grayscale’s ETF Spinoffs
Spin-offs are generally done for a variety of reasons, but with the aim of meeting a more targeted demand. According to Grayscale, their latest spin-offs aim to offer investors the choice of purchasing a similar product, but at a lower cost. For context, the proposed ETH spinoff will come with a sponsorship 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 a market gain of 3.31% and 5.82% in the past 24 hours.