Q&A on Ether Classic's outlook in light of Grayscale's Ethereum (ETC) Investment Trust's imminent release

Some questions and answers about Ether Classic’s current outlook as a new Investment Trust (IT) is being put together by Grayscale for imminent release.

What is an IT and why is it important?
A quick explainer on ITs in case you don’t already know. Creating an IT is like a forming a company for investment purposes. The company holds assets, in this case ETC. The company then sells shares in the company, not ETC. Basically, it is a way for institutions to hold an asset or a number of assets through a share or equity. ITs are usually used in the same way as investment funds or ETFs, but in this case it is being used an indirect method of getting institutional money into cryptocurrencies, which they are not currently allowed to own directly or through an ETF as cryptocurrencies are not recognised assets on regulated exchanges.

Will the Grayscale ETC IT actually happen?
Grayscale have already set up a Bitcoin Investment Trust (https://grayscale.co/bitcoin-investment-trust/#overview [GBTC]), so there would need to be a good reason why regulators would step in to stop it.

What does this mean for the price?
To set up and build the IT, they must buy ETC for the company to hold. As the Trust is open ended, no specific amount of ETC is required and it can be adjusted according to investor demand. However, we can have a guess at how much the IT might hold as institutional investors will often reflect market indexes in their investment strategies. The Grayscale Bitcoin Investment Trust currently has $184M under management, which is just under 1% of the total BTC market cap. If we assume that Grayscale can get a similar proportion of the ETC market, they will need to buy around 3.4M ETC as investors come on board. Currently, the biggest market for ETC is on Poloniex against BTC and the sum of all the offers or sells there is around 0.6M ETC. Clearly, you can see that there is an anticipated demand for ETC and the smart money knows this, that is why we are seeing the price rising from $2.6 to $4 in anticipation.

Additionally, you should bear in mind that the GBTC is currently trading at a premium to Net Asset Value (NAV) of 9%. This means that the institutional investors will pay 1.09BTC to own 1BTC. There are times where it has traded at over a 90% premium to NAV!

Does it mean you should buy?
Maybe, here are some points to consider while you are DOING YOUR OWN RESEARCH:
• There may be OTC bag holders already lined up. You should consider this highly likely – if putting this IT together was your idea, wouldn’t you have planned for this moment?
• The trust is likely to buy off exchange, so any impact on the price will be indirect and perhaps not that significant. The whales may come to exchanges to refill, but they also may not. Depending on how much institutional investor demand there is or isn’t, whales may even dump on exchange if they feel they have overstocked their bag.
• If the ETC IT is as successful as the BTC IT and 3.4M ETC are removed from circulation, it will drive supply down and the price may rise as a result.

Does this improve the outlook for ETC itself?
It doesn’t really matter for the purposes of understanding the short to medium term price movements and that I am focussing on now, but it is worth asking this question while we are here. The ETC team have finalised an economic and issuance model and there are two development teams that will be focussing on the IoT space in future. It would be nice to think that some of the money being raised might be used to sponsor new development for ETC, but we can’t yet be sure of this.

Disclosure: I hold ETC from the original ETH crowdsale and a small amount more. I may sell some or all of it in the near future.