DCG to Buy $50M in Shares of Grayscale’s Ethereum Classic Trust

Digital Currency Group (DCG), the parent company of crypto asset manager Grayscale Investments, said it plans to purchase up to $50 million in shares of the latter’s Ethereum Classic Trust.

According to the Monday announcement, DCG — which is also the parent company of CoinDesk — will fund the purchases with cash on hand and make them on the open market. 

The price of Ethereum Classic (ETC) tripled in May, reaching an all-time high of $177.26 before falling approximately 70% into the low $50s, where it remains today. Though ETC has returned 668 percent year-to-date — higher than ether (ETH)’s 163% gain — many crypto analysts saw the ETC rally as a speculative fever akin to the dogecoin (DOGE) frenzy rather than an informed investment based on the blockchain’s technological potential.

Gil Luria, an equity analyst at D.A. Davidson & Co. who has followed the crypto markets for years, interpreted DCG’s move as an arbitrage play.

“Because of the volatility in crypto assets, DCG has opportunities to capitalize on disconnects between the price of its exchange-traded listings and the price of the underlying assets,” Luria wrote in an email to CoinDesk. “Since they own the underlying assets they can sell those to acquire shares in the exchange-traded listings and capture the spread.”

DCG to Buy $50M in Shares of Grayscale’s Ethereum Classic Trust
Grayscale's booth at Consensus 2016 in New York
(CoinDesk archive)

DCG did not respond to requests for comment.

The company made a similar move to shore up shares of Grayscale’s flagship Bitcoin Investment Trust in March. These trusts are designed to give investors exposure to cryptocurrencies without the hassle of setting up a wallet or safeguarding cryptographic private keys.

ETC was created in 2016 after a schism among Ethereum’s developers over how to handle a hack that resulted in a hard fork. 

Since 2017, Grayscale has funded Ethereum Classic’s developers, donating over $1 million to the ETC Cooperative from the trust’s management fees. Developers have used the funding to add Ethereum-based updates to ETC and improve interoperability between ETC and its more mainstream cousin, ETH. Grayscale has committed to funding the ETC Cooperative at least through the end of 2021.

Despite these upgrades, ETC’s functionality still pales in comparison to ether’s, according to an analysis by researchers at brokerage firm eToro.