Cryptocurrencies have taken the financial markets by storm. Dozens of different tokens have posted monumental gains so far in 2021, notwithstanding the huge crash that many cryptocurrencies suffered just a couple weeks ago. Crypto is a volatile market, but many see the future applications for Ethereum (ETH 0.76%) and other major cryptocurrencies as having huge potential for investors despite the big increases in price that they've already experienced.

The reason why many investors have shied away from cryptocurrencies  is that trading directly in tokens requires extra steps beyond stock investing. Most stock brokerages don't offer direct investing in cryptocurrencies, and most cryptocurrency exchanges don't have integrated stock trading. That necessitates multiple accounts for would-be crypto investors.

Person working on a cryptocurrency mining rig in a industrial-looking building.

You don't have to have a mining rig to invest in cryptocurrency. Image source: Getty Images.

An alternative, however, works within most ordinary stock brokerage accounts -- including retirement accounts. Grayscale Ethereum Trust (ETHE 6.41%) offers indirect exposure to Ethereum -- and even better, it currently offers a discount to the intrinsic value of the Ether it owns.

The basics of Grayscale Ethereum Trust

Grayscale Investments was a pioneering player in the cryptocurrency space, and it quickly jumped into the game with multiple investment trusts geared toward individual and groups of crypto tokens. In the absence of U.S. cryptocurrency exchange-traded funds, Grayscale's products look very similar, using a combination of private placements and over-the-counter trading of exempt shares to offer Ether exposure to investors.

How Grayscale Ethereum Trust works is pretty simple. Those who qualify as accredited investors -- typically institutions as well as individuals with annual incomes exceeding $200,000 both in the current year and in the two past years -- were able to invest directly in shares at their net asset value. Those shares were restricted from trading for a period, initially one year, during which shareholders had no way to sell off their holdings. After the time period had elapsed, investors could sell their shares over the counter to investors who hadn't qualified under the accredited investor standard to invest directly.

For a long time, demand for those released shares was far larger than supply, and so Grayscale Ethereum Trust sold at a premium to the value of the Ether it owned. In fact, premiums of almost 1,000% a year ago and nearly 300% as recently as December offered early accredited investors huge windfalls above and beyond the rise in Ether prices.

96 cents on the dollar

Now, however, the tables have turned. A large set of accredited investors have had their shares released, and they've flooded the market trying to sell. That's pushed the price of Grayscale Ethereum Trust down to the point where it trades at a 4% discount to the value of the Ether it holds. In other words, buyers can pay about $0.96 for shares representing $1 of Ethereum.

Before you think that's free money, however, it's important to realize that there's no guarantee the discount won't get larger than 4%. During mid-May, discounts widened to as much as 10% to 15%. Some other Grayscale vehicles have had even wider discounts. Because there's no obligation or ability for Grayscale to cash out shares in exchange for actual cryptocurrency, the share price doesn't have to match up with the movements in the underlying tokens.

Know what you're buying

Grayscale Ethereum Trust is also quite expensive compared to ETFs and mutual funds. It charges annual expenses of 2.5%. Currently, each share of the trust works out to about 0.0102 Ether, but within the next year, the 2.5% fee will erode that to the point at which it'll take slightly more than 100 shares to add up to 1 Ether.

The benefit, though, is that Grayscale Ethereum Trust gets treated like a stock for most brokerage purposes. A broker that doesn't allow trading in over-the-counter securities won't allow trading in Grayscale's products, but otherwise, the trust is available in regular brokerage accounts.

If you're looking to get exposure to Ethereum, now's an interesting time to look at Grayscale Ethereum Trust. Many see Ethereum as integral to the future of cryptocurrency, and so it's entirely possible its price could keep moving higher if crypto can move beyond its recent crash and start climbing higher again.