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Grayscale's Litecoin and Bitcoin Cash Trusts Trading at Enormous Premiums. What About Other Products?

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Sun, 15/11/2020 - 10:34
Grayscale's Litecoin and Bitcoin Cash Trusts Trading at Enormous Premiums. What About Other Products?
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The premium on the shares of Grayscale’s Litecoin Trust (LTCN) have reached an eye-popping 2,353 percent relative to the cryptocurrency’s net-asset-value (NAV).   

This underscores great demand for the investment vehicle that lets institutions and accredited investors get exposure to LTC while avoiding uncertainty regarding taxation, custody, and regulatory compliance.

Two new publicly traded trusts 

The premium at Grayscale’s Bitcoin Cash Trust (BCHG) is also sitting at 515 percent despite its controversial hard fork that is slated to happen in a few hours.      

Both crypto trusts started trading publicly in August. Prior to that, accredited investors had been acquiring their shares through a private placement back since March 2018.

In Q3, LTCN and BCHG outperformed the rest of Grayscale’s family, seeing their quarterly inflows growing by 1,800 percent and 1,500 percent, respectively.    

Yet, the total amount of funds managed by these two trusts is only a drop in the bucket compared to Grayscale’s Bitcoin Trust (GBTC) that accounts for close to 84 percent of the company’s total AUM of $9.8 bln.

GBTC shares have a more consistent premium compared to other products, currently trading about 18 percent above the underlying cryptocurrency.             

Related

Short-lived arbitrage opportunities 

Such exorbitant premiums present huge arbitrage opportunities for hedge fund managers who will trade the shares of the aforementioned trusts on the open market upon the expiration of a one-year lockup period.  

As reported by U.Today, the premium for ETHE soared to over 1,000 percent back in June before falling off a cliff in the following months. 

Arcane Research concludes that the premium is way too high, and investors are only willing to pay it because there is no crypto-focuses exchange-traded fund (ETF):     

“Overall, the premiums of the Grayscale products are far above what they should be, when taking the lockup compensation into account. The premiums show that the public demand for crypto exposure is high, and that the market is ripe for an ETF.”

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