You Can Beat The Crypto Market With The Grayscale Trust Approach. Here Are All You Need To Know



The cryptosphere never stops with new developments and offerings appearing nearly every day. While it’s difficult to miss it when a new blockchain launches to overwhelming success, disrupting the market, other parts of it are easier to miss if you’re not part of their main audience.

Grayscale Ethereum is one of these – while it has been mentioned often during this year, many crypto users or investors aren’t quite clear in what it is, or why it matters. At first sight, in fact, it sounds like it could be an Ethereum fork, much like Bitcoin Classic is to Bitcoin. But it isn’t, or is it really? What is Grayscale Ethereum, then?


Grayscale Ethereum: Not a cryptocurrency


Let’s get that out of the way. Grayscale Ethereum isn’t a cryptocurrency, nor a special Ethereum-based token. Instead, Grayscale Ethereum (and all Grayscale products related to cryptocurrencies) is an Ethereum-based investment trust.

This trust works as regular, fiat-based trusts work, and it was in fact made to get the attention of traditional investors who might be on the fence about cryptocurrencies. While many investors have an interest in crypto, they lack the grasp on the concepts behind it or the market details they would need to successfully invest. Cryptocurrency-backed trusts present them with the opportunity to reap some of the investment rewards without needing to learn about and adapt to a different market dynamic.


How does it work?


Since it’s not a cryptocurrency, you can’t just hop into Binance and purchase three Grayscale Ethereums to hold. Instead, what you purchase when you invest into Grayscale Ethereum is a share in the trust.

It’s a very simple concept: The Grayscale Ethereum trust is based on a large amount of Ethereum tokens (over two million as of this writing) that’s being kept secured by Grayscale. Instead of trading these tokens, investors buy and sell shares in the trust. The value of these shares is naturally based on the value of the Ethereum itself, plus an added value due to expected investment returns and offer/demand market forces.


What does this mean? How can it be worth more than the Ethereum it holds?


Trust funds are usually worth more than their stated liquid value – that’s not unusual. The logic behind these trusts is that the stated value is simply a backup. That is, the amount of Ethereum in it represents an insurance of sorts – where the trust’s investments to fail, there’s at least an amount of ETH tokens that guaranteeinvestors won’t lose everything.

When you purchase shares on an investment trust, the money isn’t just kept by the trust manager. Instead, that money you provide them is used in investments (the particulars depends on the trust and manager,) that are expected to provide a ROI. This ROI is divided among both parties (the trust manager an the investors,) in a regular fashion. It’s the existence of this ROI that often makes trust investments wise.


What’s special about an Ethereum trust? Why not just get a regular, traditional trust investment?


There’s nothing particularly special about an Ethereum trust, if you compare it to other cryptocurrency trusts. However, if you compare it to traditional investment trusts, there’s a large difference: Cryptocurrencies work both as fiduciary and values.

This is important here, because traditional funds are valued on either one or the other. Cryptocurrencies, however, work as both – meaning the fund itself is already an investment that will change value over time.

Since the funds themselves will change value, fund shares will appreciate or depreciate on their own based on this – if Ethereum rallies, shares will be worth more, and if its price tanks they’ll do likewise. In the current environment, this is a plus because Ethereum isn’t expected to crash anytime soon, and if it does it won’t happen for long – meaning the fund will keep appreciating even if no investments whatsoever were made.

And on top of that, of course, is the investments Grayscale makes with the money from sales of shares and fees. These investments are expected to return an ROI, giving the fund shares an even higher value.


Are there any drawbacks to this?


There are naturally several, as no investment is ever safe. As mentioned, Ethereum isn’t expected to crash anytime soon – but the nature of the ETH token, unlike Bitcoin, is inflationary, so huge rallies are also not expected.

There’s also the issue of share prices: Shares almost always sell at a higher price than the percentage of the fund they represent. This is generally due to market expectations – if markets expect ETH value to go up, share values will be higher. If a huge bull run is expected, share values will rally likewise, often trading for values much higher than actual ETH is trading for.

But there’s also a downside: If the market is expected to crash, share values can tank quite quickly – and they can even start selling for less than they’re worth. Once again, ETH isn’t expected to tank, but that doesn’t mean it can’t. Were ETH to enter a massive bear market, trust investors are likely to lose more than regular investors due to the nature of the trust and the added difficulty of trading trust shares as opposed to exchanging crypto.


Should I invest in this?


There’s no clear answer. Historically, some people have made huge amounts of money with investment funds, even crypto-backed ones – the original Grayscale Bitcoin fund returned huge returns for investors as Bitcoin rallied. Even checking out the performance of the fund so far will show that some people have indeed made money on the Ethereum fund, a lot of it even.

However, the crypto market, in general, isn’t the same today as it was back in 2017. A permanent rally for cryptocurrencies isn’t cast in stone and, while ETH is expected to appreciate, the question when investing isn’t just whether you’ll make money, but also whether you could make more money investing somewhere else.

Right now, Grayscale isn’t a bad option or a bad investment, and it’s a great way for newcomers to test the waters in crypto markets. Yet, as with all investments, this might not be the best one around – but then again, you might never know until you try.