The Grayscale Ethereum Trust (ETHE) has seen its discount to net asset value (NAV) narrow to its lowest level in over two years, dropping to -6.7% by market close yesterday. This reduction in the discount suggests growing optimism among investors regarding the approval of a spot ether exchange-traded fund (ETF) by the Securities and Exchange Commission (SEC).

The discount to NAV represents the difference between the market price of each share and the value of the ether it represents. The narrowing of this discount may indicate investors' anticipation of potential ETF conversions, similar to what occurred with the Grayscale Bitcoin Trust (GBTC) before its conversion to an ETF in January.

Historically, the Ethereum Bitcoin Trust traded at a premium, but it began trading at a discount following a crypto credit crunch in 2021. ETHE currently holds $10.9 billion in assets under management.

As of the market close yesterday, ETHE shares were trading at $32.76. The Grayscale Ethereum Trust has seen a 41.2% increase in value this week, compared to a 22.9% increase for ether itself. This surge in value follows Bloomberg ETF analysts Eric Balchunas and James Seyffart raising their odds of spot Ethereum ETF approvals from 25% to 75% on May 20.

The sudden narrowing of the ETHE discount to NAV came after signs of a shift in stance from the SEC, with indications that crypto is increasingly becoming a political issue. The SEC has requested minor updates to important 19b-4 forms for prospective spot Ethereum ETFs, suggesting potential approval for these forms as early as today.

The removal of staking rewards appears to be a significant factor in the approval process, with Grayscale eliminating all staking language from its spot Ethereum ETF proposal. The SEC has key deadlines on Thursday and Friday to decide on the applications for spot Ethereum ETFs submitted by various firms, including VanEck, Ark Invest, Hashdex, Invesco, Fidelity, BlackRock, Franklin Templeton, and Bitwise.