Crypto Investors Are Paying Over 2,000% Premiums On ETH Via Grayscale’s Ethereum Trust
Something pretty weird is happening on the Ethereum (ETH) market. According to Charlie Bilello, known as a financial researcher and investor, Ethereum is currently being traded in some markets with substantial premiums that can reach 2,000%.
On Twitter, he affirmed that ETH was traded with a premium of exactly 2,022% ($580 USD per share) on Grayscale’s Ethereum Investment Trust during June 21. Today, the premium stands at around 312%, as it is decreasing, but it started around 1,000% on June 20. The premiums are way above the Grayscale’s Ethereum Investment Trust, obviously.
According to Bilello, people who bought the shares at 2,000% obviously got burned. The price of the asset went up after they bought, but the price was actually so high that they simply had no way to make up for their losses by investing with such a high premium. So far, they had a 78% loss, he affirmed.
At the time of this report, the price of ETH is around $305 USD. The shares are the equivalent of 9.6% of that price, so they cost around $28.87. By paying such an absurd premium, investors bought shares as it Ethereum was actually worth $5,800 USD, which is obviously not a price that the token will reach anytime soon.
Why Are The Investors Paying So Much To Buy Ethereum?
We can start to have an idea of how the premium got so high when we look at how Bitcoin is trading on this kind of over the counter (OTC) desk. The Grayscale’s Bitcoin Investment Trust, for instance, sold BTC for $11,000 USD a piece during May 29. This meant that the premium was 37%.
The reason for that is that some accredited investors cannot buy Bitcoin and Ether using the existing crypto exchanges. Some of them are very wealthy people who are watched carefully by the regulators and most exchanges are not very well regulated.
In order to be able to participate in the market, they need to use a company such as Grayscale. The company is fully insured, regulated and transparent, so they have the perfect channel for investing. Unfortunately for them, so many investors looking for these products can make the prices go up.
This is basically why so many companies are starting to invest in institutional services. This way, they are able to cater to these new investors and get their huge amounts of money. As you may know, one wealthy institutional investor is worth a lot more than dozens of retail ones for a company since they hold a lot of money.
The premium can be explained because of the high demand for the shares. The investors had to pay so much money exactly because they wanted to participate and they were not alone but in a huge crowd of similar investors.
At the time of this report, the premiums are still very high. It looks like the investors will still need to pay a high premium if they want to be a part of these services.
Is There A Solution For This Problem?
How to solve this problem? The answer is actually fairly easy: the eagerly awaited Bitcoin exchange-traded fund (ETF) could be an answer. With a regulated mechanism such as this one, the investors would not need to pay such a large premium anymore, which would benefit them and the market.
Unfortunately, the ETF still looks to be far from approved at the time. Bitcoin is already a popular product, but concerns regarding market manipulation are preventing the U. S. Securities and Exchange Commission (SEC) to act on this issue. How much time do we have to wait until the SEC finally votes in favor of the ETF? Nobody knows.