Written by

Vetle Lunde

Senior Analyst

19 Aug 2020

The Current State Of The Publicly Traded Grayscale Products

Grayscale offers several publicly traded trusts. These trusts are sold in the secondary market to the public at large premiums compared to the underlying value of the shares (NAV). These trusts are based solely on single assets, and should thus not outperform its underlying asset over time. The excess return should be arbitraged away, so what’s happening?

1. Accredited investors get to invest directly into the trusts at NAV, creating new shares either using cash or cryptocurrency (“in-kind”). These shares are subject to a lockup period before they can be freely traded in the secondary market.

Grayscale offers several publicly traded trusts. These trusts are sold in the secondary market to the public at large premiums compared to the underlying value of the shares (NAV). These trusts are based solely on single assets, and should thus not outperform its underlying asset over time. The excess return should be arbitraged away, so what’s happening?

1. Accredited investors get to invest directly into the trusts at NAV, creating new shares either using cash or cryptocurrency (“in-kind”). These shares are subject to a lockup period before they can be freely traded in the secondary market.

2. Retail investors buy into existing shares of the fund in the secondary market, with accredited investors being the sellers. In lack of crypto ETFs, these publicly traded trusts are the only option for American savers to get access to crypto exposure via their 401k savings.

Main drivers of the Grayscale premiums:

1. Investors buying directly into the trust seek compensation for the lockup period.

2. High retail demand for crypto exposure through 401k savings, with few other options.

3. Investors might be unaware of the premium.

Current NAV and share price of various Grayscale Products

This week, the Grayscale's Litecoin (LTCN) and the Bitcoin Cash (BCHG) trusts went public. Other publicly traded Grayscale products are the Bitcoin Trust (GBTC), the Ethereum Trust (ETHE), the Ethereum Classic Trust (ETC ) and the Grayscale Digital Large Cap Fund (GDLC).

We will now look at the current NAV, share price and premium of GBTC, ETHE, LTCN and BCHG.

The Grayscale Bitcoin Trust

Source: Digital Assets Data

The Grayscale Bitcoin Trust has surpassed $5 billion in AuM (2.3% of the BTC supply).

The publicly traded shares of the trust (GBTC) currently trade at a premium of 23% compared to the NAV.

The premium of GBTC has traded at a premium between 7 to 40 percent since January 2019.

The Grayscale Ethereum Trust

Source: Digital Assets Data

The Grayscale Ethereum Trust has $837 million worth of AuM (1.8% of the ETH Supply).

The publicly traded shares of the fund (ETHE) currently trade at a premium of 93.7% compared to the NAV.

In June, the premium soared above 800%. The premium has normalized, but is still high.

The Grayscale Litecoin Trust

Source: Digital Assets Data, Yahoo Finance

The Grayscale Litecoin Trust became publicly traded this Tuesday (August 18th, 2020) and has traded with a wild premium since the launch.

Currently, the premium of LTCN is at a whooping 753%.

High retail demand for LTC exposure generates lucrative returns for the early investors of the trust.

The Grayscale Bitcoin Cash Trust

Source: Digital Assets Data, Yahoo Finance

The Grayscale BCH Trust was also launched this Tuesday (August 18th, 2020), and has also traded at a large premium.

The current premium of BCHG is at 351%.

The premium has been falling since launch, indicating that the BCH demand among retail is not on par with the demand seen in LTC.

Conclusion

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.