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Grayscale Funds Still Trade with Negative Premium, Here's What It Means

Fri, 11/12/2021 - 11:26
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Arman Shirinyan
Grayscale is continuously trading with a discount compared to its underlying asset
Grayscale Funds Still Trade with Negative Premium, Here's What It Means
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Grayscale's Bitcoin and Ethereum funds are continuously moving in the negative, which might mean numerous things for potential investors that would like to receive exposure to the cryptocurrency market.

Grayscale's performance

Premium and discount rates usually reflect the performance of the fund that manages its clients' assets. With the approval of futures-backed Bitcoin ETFs, Grayscale lost some of its clients and potential investors, the most likely the reason for the conversion application filled previously.

Here's How Much Bitcoin ETF Underperforms Compared to Spot BTC

The premium rate in fact reflects the net asset value compared to the share price. When the price of the ETF trades below its NAV, the fund is trading at discord and vice versa.

How market usually reacts

If a trader has to choose between the fund and the underlying asset, he could use the premium or discount rate to determine which offering on the market will be more beneficial.

With a high premium, a trader has to overpay for the same position that he or she could have opened on the spot market.

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The average premium rate for the Grayscale Bitcoin fund has been staying at around 28% with the maximum reaching 132%. But after the increased volatility on the market, Grayscale's tracking had deteriorated, especially after Bitcoin lost 40% of its value in May.

The tracking issue remains one of the main issues for both private and exchange-traded funds. With the approval of the futures-based Bitcoin ETF, institutional traders indeed receive exposure to the cryptocurrency market but, unfortunately, have to pay high roll costs, go through contango bleed and lose up to 20% of unrealized profit.

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About the author

Arman Shirinyan is a trader, crypto enthusiast and SMM expert with more than four years of experience.

Arman strongly believes that cryptocurrencies and the blockchain will be of constant use in the future. Currently, he focuses on news, articles with deep analysis of crypto projects and technical analysis of cryptocurrency trading pairs.