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Why Grayscale Ethereum Trust Is Soaring Today

By Jon Quast - Updated Jan 19, 2021 at 12:29PM

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The fund offers a simple way for investors to gain exposure to this popular cryptocurrency, which happens to be flirting with all-time highs.

What happened

Shares of Grayscale Ethereum Trust (ETHE -5.95%) were soaring on Tuesday. As of noon EST, the stock was up 22%. This is likely related to the movement the funds' underlying asset: Ether. Ether is the token native to the Ethereum blockchain, and it's been going up rapidly over the last few days. In fact, today Ether tokens surpassed the price of $1,400 per token -- a level not seen since 2018.

So what

Ether tokens reached all-time highs of $1,448.18 back in January 2018, according to CoinDesk. Ether's 24-hour high (remember, unlike stocks, cryptocurrencies trade hands everyday around the clock) is $1,439.33 -- less than 1% away from blasting to new all-time highs. 

Stacks of physical coins display the symbol for Ether.

Image source: Getty Images.

Now what

Since Grayscale Ethereum Trust holds Ether tokens, it only makes sense for it to rise as the price of Ether rises. However, it's a little more complicated than that. You see, as of yesterday, the fund only held $12.15 of Ether per share. The price of Ether is up 15% over the past 24 hours, so the value of those Ether holdings has risen some since yesterday. But shares of the fund currently trade over $17 -- far beyond the value of its assets.

As long as shares of Grayscale Ethereum Trust gain at a faster rate than the underlying Ether assets, this is going to look overvalued on a fundamental basis. However, it's increasingly true that investors are looking for some exposure to cryptocurrencies without the hassle of going through a cryptocurrency exchange. Grayscale, therefore, offers a rare in-demand product. The low supply of assets like this coupled with strong demand is leading to the lofty valuation.

As long as the price of Ether and other cryptocurrencies keeps rising, expect investors to continue looking for ways to invest in the space. If true, Grayscale Ethereum Trust and the company's other funds will likely stay in high demand.

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