ETHE: 40% Rally On ETF Hopes, Time To Buy

Summary Greyscale's Ethereum Trust (ETHE) has experienced a 40% surge in the last two days, possibly due to the potential approval of an Ethereum ETF. The discount to NAV of ETHE has decreased, indicating a closing gap between the Trust's price and the price of its Ethereum holdings. Ethereum tends to outperform Bitcoin during "Altseason," and history suggests we are nearing one now. Thesis Summary Greyscales’ Ethereum Trust ( ETHE ) has skyrocketed close to 40% in the last two days. No, this is not a meme stock, and it has a perfectly reasonable explanation. The Ethereum (ETH-USD) ETF could be near, which is why we have seen the discount to NAV close down. For those of us holding ETHE it has been a welcome development, but despite this big rally, this is not the time to take profit, yet. With Bitcoin (BTC-USD) potentially reaching new highs soon, it’s only a matter of time before altcoins, and Ethereum begin to catch a bid. In fact, this seems very likely given historical behavior. I actually expect Ethereum to outperform Bitcoin in the coming months. The ETHE Rally Explained A few months back, the Bitcoin ETF was approved, which did not actually spark a huge rally as many expected, but did serve to all but eliminate the discount to NAV of the Trust. GBTC discount to NAV (Ycharts) Due to the fact that GBTC was not an actual ETF, it could not arbitrage the difference between its actual price and the price of its actual BTC holdings. But this changed with the ETF approval. Now, we are seeing the same happen with ETHE. ETHE Discount to NAV (Ycharts) The ETHE discount to NAV has closed down in the last couple of days, going from over 20% to 11%. According to recent news , the SEC has asked prospective ETF applicants to update 19b-4 filings. While this does not necessarily mean the Ethereum ETF will be approved, it does seem to suggest that the SEC is considering it, or else it would probably not be asking for funds to update these documents. I believe it has been this key development which has contributed towards closing down the ETHE discount. This, paired with a nice move in Ethereum’s price has led to a 40% rally in only two days. ETHE chart (TV) ETHE, and Ethereum, are close to new all-time highs, and I think there’s a lot more juice left to squeeze here, even if the discount has almost been eliminated. Ethereum’s Time to Shine Since Ethereum took its place as the second-largest cryptocurrency, the ETH vs BTC debate has been a point of contention in every Cycle. ETHBTC (TV) Over the last two years, BTC has actually been outperforming Ethereum, which is reflected in the ETHBTC chart shown above. However, we could argue that we have a nice cup and handle patterns projecting us up. In any case, Ethereum tends to outperform Bitcoin during “Altseason”, which is when altcoins, Ethereum included, outperform Bitcoin. This has happened in every cycle BTC Price/Dominance (X) In fact, this tends to happen as Bitcoin breaks above its previous highs. We can see this in the chart above, where we have the Bitcoin price, and below, Bitcoin dominance. Just as BTC breaks above its previous highs in 2017, BTC dominance begins to fall, which means Altcoins are gaining market share out of the total crypto market. In other words, Altcoins are outperforming Bitcoin. BTC Price/Dominance (X) We see the same story in 2020. ETHBTC (TV) I’ve marked these dates on the ETHBTC chart too, and as we can see they also mark a reversal in the ETHBTC price. BTC Price (TV) Technically, we have already broken above the precious highs, but we haven’t yet done so in an impulsive rally. This is ultimately what I expect to happen. Bitcoin breaks well above the 70K range and, in doing so, sparks another major rally in altcoins. Should You Buy ETHE? With that said, is ETHE the best bet right now? As the price stands today, there is still some money to be made from the discount window closing further. However, it is likely that some of the new ETFs that might be approved will have lower fees than the GBTC ETF. In reality, the best way to gain exposure to Ethereum now would be to buy Ethereum directly, which can be done through an exchange like Coinbase (COIN). This would give you full control of Ethereum, if you move the coin to a private wallet, and could even give you the option of staking the Ethereum , which would then allow you to generate yield. Final Thoughts In conclusion, I think now is a good time to buy crypto, and more specifically some of the altcoins. Ethereum is perhaps the most reliable of these, and I expect it to outperform Bitcoin. However, buying ETHE now may not be the best way to gain exposure. Personally, I will hold on to my ETHE positions, but may look to add more Ethereum to my crypto wallet.