Summary Grayscale's Ethereum Classic Trust offers shares that reflect a stake in Ethereum Classic, making it accessible to a wider range of investors. The trust currently trades at a 42% discount to Net Asset Value. Ethereum Classic's upcoming halving is unlikely to create bullish sentiment given the broader market lull. Introduction Specializing in structured instruments, Grayscale is a leading digital currency asset management firm that gives investors safe, regulated access to the cryptocurrency market. The Ethereum Classic Trust ( ETCG ), one of Grayscale's specialist products, is made to let investors purchase Ethereum Classic ( ETC-USD ) as a security. By removing the hassles of buying, storing, and safeguarding Ethereum Classic directly, this product makes it easier for investors to acquire exposure through a more traditional investment vehicle. The Ethereum Classic Trust shares are mostly available on the Over-the-Counter (OTC) market, where a wider variety of ordinary and institutional investors can purchase them. The main goal of ETCG's investments is to replicate Ethereum Classic's price performance while taking trust fees and other running costs into consideration. It accomplishes this by directly owning ETC, with daily share values determined by removing the trust's costs and liabilities from the current Ethereum Classic market pricing. Ethereum Classic (ETC) Price Action Since its launch in 2016, ETC has been a wild ride in terms of price fluctuations. When the Bitcoin bubble 'burst' in late 2017 and early 2018, its initial value of $2.08 skyrocketed to over $40. It then went through the crypto winter but made a huge comeback in the beginning of 2021, shooting beyond $100 to hit an all-time high of $176.16 in May. Nonetheless, it ended the year at $34.12, demonstrating the market's intrinsic volatility in cryptocurrencies. Even though 2022 was a difficult year for cryptocurrencies in general, ETC beat the market as a whole. It closed the year at $15.69 after hitting over $50 in March but suffering a number of setbacks, including market collapses and the collapse of the FTX exchange. Considering the market's general fall of over 60%, this coin fared better than many others, even though it only saw a decline of roughly 55%. Ethereum Classic's trajectory persisted until 2023, with some changes brought about by outside factors. Even though it reached a peak of $24.79 in February, it encountered difficulties like Silvergate Bank's failure and regulatory actions directed at significant exchanges. These occurrences played a part in its decline to a June low of $13.42. It concluded at $21.92 on the year, up 40% from the previous year but behind the rise of the entire cryptocurrency market. This was despite some rebound in the second part of the year. ETC saw more volatility in 2024, peaking in March at $39.62 and plunging to a low of $27.01 in April. At present, ETC is the 28th-largest cryptocurrency by market capitalization trading at $27.75, with about 147 million ETC in circulation out of a total supply of 210.7 million. Although ETC has historically offered a peer like exposure to ETH at a lower cost, ETH's shift to a Proof-of-Stake (PoS) mechanism has shifted their likeness. This is further complicated by ETC's performance in comparison to the overall market, which has arguably underperformed relative to bluechips, like BTC, ETH, or SOL. Ethereum Classic Trust's Performance Analysis Shifting our attention to the Grayscale Ethereum Classic Trust, we can look at the Net Asset Value per share and its market price per share over time, to assess the trust's historical performance. A number of factors, including changes in underlying asset pricing, market speculation, supply and demand dynamics, and investor emotion, can cause discrepancies between the NAV and market price. The trust is said to be trading at a premium when the market price per share exceeds the NAV per share. On the other hand, the trust is selling at a discount if the market price per share is less than the NAV per share. Data by YCharts Based on the available data, Grayscale Ethereum Classic Trust has a -42.38% discount to NAV. This implies that the computed NAV per share is much higher than the market price per share. Such a significant discount can be a sign of unfavorable investor sentiment or of perceived risks related to investing in ETC. So although there may be an inefficacy at play, I would argue that the risks involved, when compared to ETH, are critical when forming a final decision. The price of ETH increased by a significant 1.63K%, while the price of ETC increased by a less significant 384.5% over the past 5 years. The correlation coefficient of 0.955 between the prices of ETH and ETC indicates a very strong link between the price movements of the two assets. Data by YCharts This suggests that if one is looking for non-bitcoin crypto exposure, then the historical performance of ETH is much more interesting than ETC. Further, the strong correlation also suggests that ETC should not be seen as a point of diversification to hold in one's crypto basket. Ethereum Classic Halving ETC is about to reach a major turning point because of its upcoming halving on May 31, 2024 . This development means that mining rewards will decrease, which might have a significant impact on the dynamics of the ETC market, similar to the BTC halving last month. Though mining is profitable, especially when using efficient hardware combined with cheap power costs, it is projected that the halving would increase market volatility and possibly raise the price of ETC because fewer coins would be produced. This will also happen at a relatively untimely point in the market where we are far from seeing any all-time highs, which implies that it is unlikely to serve as a bullish catalyst given the mediocre market sentiment. Risks and Challenges Market volatility is one of the main dangers of investing in ETC. Similar to numerous cryptocurrencies, the price of ETC is subject to abrupt fluctuations. Numerous factors, such as macroeconomic trends, regulatory changes, technical improvements, and market sentiment, might contribute to this volatility. Another trust-specific risk is that investors may encounter difficulties in the ETCG market due to low liquidity risks, especially when trying to make large trades. Increased price slippage, broader spreads between ask and bid prices, and difficulty initiating or leaving positions at targeted prices can all be consequences of limited liquidity. Because of this, traders of ETCG should proceed with caution, particularly in illiquid markets or during times of high volatility. There may also be dangers if there is no redemption program. The ETCG, in contrast to certain other investment vehicles like exchange-traded funds, is devoid of a redemption mechanism . Conclusion The upcoming halving event, as well as the risks and challenges associated with investing in ETCG, led to my prudent recommendation of HOLD. Despite the volatility inherent in the cryptocurrency market and the uncertainties surrounding ETC's future, holding on to existing positions can be beneficial given the long-term potential for market shifts that would close the 42% NAV discount. However, when it's all laid out, there is a strong argument for holding ETH over ETC.
