Summary I've been bullish on digital assets and crypto-proxy assets in 2024, with cautious exceptions for Grayscale funds trading at large premiums. My bearish stance on the Grayscale Solana Trust contrasts with my bullish view on the Grayscale Digital Large Cap Fund due to its discount to NAV. The Grayscale Ethereum Classic Trust also trades at a large discount to NAV, but I'm skeptical about buying it despite that discount. Usage of the Ethereum Classic blockchain has seen continued erosion of the last 10 months. It's a ghost town blockchain. In my view, there's no real reason to expect a positive catalyst from here that helps close the discount rate in ETCG. I've generally been very bullish of digital assets and crypto-proxy assets during the majority of 2024. There have been a few exceptions to that bullishness, however, with Grayscale funds that trade at large premiums being an area where I've recommended caution. My recent coverage of the Grayscale Solana Trust (GSOL) is a good example of one of my bearish takes. On the other hand, I've been bullish on the Grayscale Digital Large Cap Fund ( OTCQX:GDLC ) due to the large discount to net asset value. There is one Grayscale product that bucks the general trend from the company's offerings; like GDLC, the Grayscale Ethereum Classic Trust ( OTC:ETCG ) trades at a large discount to net asset value as well, but I'm much less convinced that buying the fund on any discount closing is a good idea. I last covered ETCG for Seeking Alpha in January and held a bearish viewpoint. At that time, Ethereum Classic ( ETC-USD ) developers were gearing for the "Spiral" upgrade, and I had several concerns about the preparedness in the market. Today, we'll go over how the network has performed since that upgrade and get into some of the shareholder information pertaining to ETCG specifically. Ethereum Classic Network Data The point of the network upgrade back in January was to make Ethereum Classic more EVM-ready in the event that something happened to the Ethereum ( ETH-USD ) network. So far, Ethereum is plugging along just fine and scaling quite well via L2 networks. For Ethereum Classic, there hasn't been any real surge in applications or Total Value Locked on the blockchain: Ethereum Classic TVL in ETC (DefiLlama) DefiLlama shows the ETC-denominated TVL on the blockchain at just 20.5k ETC, or a USD value of a little over a half million dollars. This is well off the December high of $1.7 million and indicative of a blockchain that has had virtually no dapp growth whatsoever since Spiral. It doesn't get much better when looking at the raw user numbers: 30 Day Average DAA (CoinMetrics) The 30-day rolling average of daily active addresses fell below 12k in October. This level of users is still slightly above the all-time lows late 2020, but well off the highs from 2021. The same is true for transferred value on the chain: 30 Day Average Transferred Value (CoinMetrics) While it has actually grown a little bit here in November, USD-denominated transferred value averaged less than $10 million for nearly the entire months of September and October. That figure spent most of January between $40-50 million per day before the Spiral upgrade. Finally, it isn't a network data point, but one of optics: ETC Blog The ETC Blog that has been active since 2015 by various writers and regularly maintained by Donald McIntyre since late 2022 hasn't been updated since August. The same is true for the Ethereum Classic YouTube page. The point is, there is very little activity or enthusiasm for Ethereum Classic as a blockchain network. Thus, the gas token associated with the chain lacks any sort of organic bid or bullish catalyst from where I sit. Grayscale Ethereum Classic Trust Despite Ethereum Classic seemingly becoming a ghost town of a blockchain, ETCG remains one of the top single asset Grayscale funds by AUM at $305 million: Grayscale Funds by AUM (CoinGlass) This is unusual because ETC has a much smaller market capitalization than other cryptocurrencies in this screengrab, like Litecoin ( LTC-USD ) or Bitcoin Cash ( BCH-USD ). And unlike every other non-ETF single-asset fund offered by Grayscale, ETCG is the only fund that trades at a considerable discount to net asset value. As of 11/21 close, that discount stood at over 42%. There's a good reason for this, in my view, and it's related party holdings. Genesis Assets (Genesis Global Holdco, LLC) In my past ETCG work for Seeking Alpha, I've noted the high related party ownership in the fund relative to other funds. There are just under 14 million ETCG shares outstanding. Of those shares, related parties owned over 3 million as recently as Q3-23. As of Q3-24, that figure is down to just 15k shares. The reported related party figure from the latest ETCG 10-Q no longer includes shares held by Genesis. Genesis notoriously went bankrupt as a result of third-party insolvencies from Crypto Winter in 2022. In February, Genesis was given court approval to sell off the trust assets at its own discretion and without a timeline. Though it appears as though the trust assets have been sold off based on both industry reports and court documents . Still, ETCG trades at nearly half the market value of the ETC underlying the fund. Closing Thoughts I don't see a real catalyst that reverses this discount. Unlike some of the other discounted crypto-proxy funds that track with assets that have strong networks and user bases, Ethereum Classic just doesn't have the level of activity that, I believe, would make the coin itself necessary to acquire. Without an organic bid on ETC for gas usage as a utility coin, there's little reason to be bullish ETC and by extension ETCG. Stranger things have happened in this market, and ETCG's NAV discount could certainly close back near NAV. Especially considering the Genesis liquidation overhang is seemingly in the rearview mirror. But I think there are better ways to double your money in this market than betting on a discount window closing in a fund that offers exposure to a blockchain network that has very little activity and no clear catalyst. I'm still going to call this one an avoid.
