Prominent asset manager Grayscale Investments is set to launch spin-offs of its Grayscale Ethereum Trust (ETH) and Grayscale Bitcoin Trust (GBTC) exchange-traded funds (ETFs). Following inquiries from market observers and potential investors, Bloomberg analyst James Seyffart has provided a wealth of information on the nature and operation of these spin-offs.
Seyffart says Grayscale ETF spinoff based on 90-10% share format
On Friday, James Seyffart published thread on the X social platform, discussing essential information about Grayscale’s ETFs: Grayscale Ethereum Mini Trust (ETH) and Grayscale Bitcoin Mini Trust (BTC), which are based on the ETHE and GBTC funds, respectively.
Related Reading: BlackRock Overtakes Grayscale to Become World’s Largest Bitcoin Fund with $20 Billion AUM
An ETF spin-off occurs when a portion of the ETF shares are spun off into a modern, independent ETF. In this process, the original ETF shareholders, i.e. EHTE and GBTC, automatically receive shares of the modern ETF, i.e. ETH and BTC. However, the amount each shareholder receives is proportional to their shares in the original ETF and the spin-off’s distribution formula.
I’m making a thread about the situation @Grayscalespin off for $ETH & $ETH because I’ve gotten about a million questions about it. The mechanics will be basically the same for $GBTC & $BTC spinoff. If you have 1000 shares $ETHyou should get 1000 mini shares $ETH. 1/ photo:twitter.com/Er66mj5L46
— James Seyffart (@JSeyff) July 19, 2024
Seyffart explains that Grayscale’s spin-offs are based on the same mechanics, where if you have 1,000 shares of ETHE or GBTC, you will receive 1,000 shares of ETH or BTC. However, when it comes to value, Seyffart states that the initial value of $1,000 of ETHE or GBTC will decrease to $900, while the shares in the modern ETFs will accumulate a value of $100, meaning Grayscale is using a 90-10% split formula.
In addition, the Bloomberg analyst emphasized that the ETHE spin-off is scheduled for July 23, while GBTC will take place on July 31. However, in order to be eligible for the distribution of shares from the modern ETFs, investors should purchase shares of these original funds before or on the date of the spin-off date, which is July 18 for ETHE and July 30 for BTC. After that, investors will have to purchase ETH shares as a separate, independent fund.
Seyffart notes that the record date for ETHE has already passed, stating that the ETF’s low price in early 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.
The Importance of Grayscale ETF Spin-Offs
Spin-offs are usually done for different reasons, but they are designed to meet more targeted demand. According to Grayscale, their latest spin-offs are designed to offer investors the choice of buying a similar product, but with lower fees. For context, the proposed ETH spin-off will come with a sponsorship fee of just 0.15%, which is quite low compared to ETHE’s 2.5% fee.
Related reading: Related reading: Bitwise CIO bullish on Ethereum ETFs, driving rally to record highs above $5,000
Currently, both ETHE and GBTC are trading at $29.71 and $59.68 respectively, implying a market gain of 3.31% and 5.82% in the last 24 hours.
