ETCG, a trust product launched by Grayscale in April 2017, trades at a roughly 50% discount to its net asset value (NAV). Grayscale is owned by Digital Currency Group, CoinDesk's parent company.
Roughly 2 million ETCG shares were issued between April and May 2020, according to FundStrat. Private placement shares take one year to vest and are likely being released to the market.
“ETCG volume has been spiking recently this month as those shares are coming unlocked to the market,” Grider wrote.
“Many of these same shareholders are now finding themselves in need of covering their ETC denominated loans," he wrote. "This means that these same investors who borrowed ETC to contribute to the trust must now sell ETCG shares and buy back ETC in the spot market to repay these loans.”
Grider said that lower liquidity of ETCG has forced investors to push fund shares to a deep discount from the spot price. Therefore, the demand to cover borrowed positions has likely contributed to an increase in the ETC price.
ETC has traded sideways over the past few days after it reached an all-time high around $178 on Thursday.
“The stability of the price over the weekend is encouraging,” Grider wrote in an email to CoinDesk on Monday. “I think there’s still a bid to cover that could last until the end of Q3. It could provide some steady demand for ETC.”
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.