The Grayscale Ethereum Trust (ETHE) has seen substantial gains in its performance, closely following the filing of applications for a spot Ethereum exchange-traded fund (ETF) by ARK Invest and VanEck. This move has ignited speculation within the crypto market about the possibility of Grayscale converting ETHE into an ETF.

Blockchain intelligence firm IntoTheBlock reported that despite a drop in the price of Ether (ETH), the ETHE discount to its net asset value (NAV) has narrowed to 26% within the same period. This development signifies growing interest and optimism among investors regarding the potential conversion of ETHE into an ETF.

On September 6th, ARK Invest took steps towards launching the first spot Ether ETF in the United States. In their filing with the United States Securities and Exchange Commission (SEC), ARK Invest outlined plans for the ARK21Shares Ethereum ETF, which aims to track the performance of ETH. Coinbase, a prominent American crypto exchange, is designated as the custodian responsible for safeguarding all of the fund's ETH holdings, while 21Shares, a crypto exchange-traded products issuer, serves as the trust's sponsor. ARK Invest will play the role of sub-adviser and manage the marketing of the ETF's shares.

The announcement of these ETF applications by ARK Invest and VanEck generated significant buzz in the crypto market, leading to a brief price surge in both Bitcoin (BTC) and ETH, followed by a return to their pre-announcement levels. In contrast, ETHE continued to make gains.

IntoTheBlock highlighted that ETHE has consistently reduced its discount compared to the underlying ETH, experiencing an impressive increase of more than 140% in 2023 alone. This discount began diminishing in June, coinciding with BlackRock's leadership in a consortium of traditional finance giants filing for a spot Bitcoin ETF. Initially, the discount improved from -56% to -36% that month and has now reached -26% in the current month, marking a level not seen since October 2022.

The observed trend, as noted by the blockchain intelligence firm, suggests that the crypto market is actively considering the possibility of Grayscale converting ETHE into an ETF, driven by the growing interest in ETFs within the industry.

The race to launch the first spot Ether ETF unfolds alongside the anticipation of the SEC's decision regarding a set of applications seeking approval for a spot Bitcoin ETF. While the regulatory agency's next steps remain uncertain, Grayscale's recent legal victory in its battle with the SEC over the rejection of a spot Bitcoin ETF could potentially influence the regulator's decision-making process.

Industry analysts have set a provisional deadline of May 23, 2024, for the SEC to make a determination on the applications for a spot Ether ETF, which is eagerly awaited by the crypto community.