Grayscale's Ethereum Trust (ETHE) discount has decreased to below 10%, its lowest point since 2021, due to rising expectations for the approval of a spot Ethereum exchange-traded fund (ETF).

As of May 21, YCharts data shows that the ETHE discount has narrowed to 6.66%. This "discount" reflects when ETHE shares trade below their net asset value (NAV).

ETHE began trading at a discount in early 2021 after Grayscale stopped redemptions, peaking at nearly 60% in late 2022. However, the discount started to narrow in 2023 following Grayscale's legal victories against the US Securities and Exchange Commission (SEC) in its effort to convert its Bitcoin trust into an ETF. Since then, the discount fluctuated between 10% and 20% before dropping to 6% due to recent developments regarding the Ethereum ETF.

Recently, reports indicated that the US SEC might approve spot Ethereum ETFs, a significant shift in expectations. Several ETF applicants quickly amended their filings with the financial regulator, and on May 21, Grayscale and other issuers like Fidelity withdrew the staking proposal from their spot Ethereum ETF plans.

Market analysts suggest that the narrowing ETHE discount indicates traders are buying the product to capitalize on arbitrage opportunities, anticipating they can sell spot if ETHE converts to an ETF. Experts warn that a Grayscale Ethereum ETF might see significant outflows at launch, similar to the situation with GBTC after the BTC ETF approval. Nic Puckrin, CEO of Coin Bureau, noted that Grayscale's ETH product holds about 2.9 million ETH (approximately $10 billion), representing around 76% of the total float of ETH investment products globally, which is more than GBTC held before the BTC ETF approval.