Ether Capital, a prominent Toronto-based crypto firm, announced Thursday that it will convert into an ETF managed by Purpose Investments, ending a clash between the board and some investors over its share price that started last year. The deal is pending approval from shareholders. 

“It’s a great outcome for all shareholders,” said Elliot Grundmanis, an Ether Capital shareholder who had been trying to organize fellow investors to pressure the board over a persistent gap between the company’s share price and the value of the crypto it holds in its treasury. “Credit to the team for doing this in the right way.”

In December, The Logic reported shareholders had been pressuring Ether Capital’s high-profile directors to wind the company down or convert its holdings to a mutual fund. At the time, the value of the company’s crypto holdings exceeded its market capitalization by an average of 40 per cent.

Maverix Private Equity founder and managing partner John Ruffolo had previously resigned from Ether Capital’s board over this concern in June 2023, The Logic reported. Ruffolo stepped down after the company concluded a previous strategic review with a decision to focus on cutting costs, staking the Ether in its treasury and buying back shares, rather than winding down or converting.

Under the agreement, Purpose—whose CEO, Som Seif, is also Ether Capital’s co-founder and interim CEO—will purchase Ether Capital’s non-crypto assets and the right to manage the fund for $1.5 million. Ether Capital’s digital assets, which Purpose will stake—or lock up in exchange for rewards—using the company’s infrastructure, will form the fund’s portfolio.

Shares of Ether Capital will be re-designated as shares of the ETF, the company said in a release. Shareholders will not have to sell their common shares and the conversion is not expected to trigger a taxable event. Ether Capital’s three employees will be offered roles at Purpose, Seif said in an interview with The Logic.

The tax, staffing and liquidity challenges of running an operating company contributed to the disconnect between Ether Capital’s share price and the value of its treasury. When the company went public in 2018, it was one of the only regulated options for Canadian retail investors to gain exposure to Ethereum, but it now competes with ETFs, funds and regulated crypto-trading platforms.

Seif said the regulatory environment has evolved over the past year since the previous strategic review that ended in Ruffolo’s resignation. At the time, it wasn’t clear an ETF conversion or a wind-down was the best path forward, he said, especially given the opportunity for innovation and experimentation in an operating company.

“I think we did something really important from 2018 onwards,” Seif said. “We still have this huge view that Ethereum continues to be an extremely exciting and important platform.”