Grayscale’s Trust Shares Are Trading At Huge Premiums, Arcane Research Reports
- Grayscale Trust shares are currently trading at a ‘huge’ premium showing an increasing demand in crypto across the U.S.
- In a report by blockchain research firm, Arcane Research, the ballooning monetary and fiscal policies in the U.S. could be the driver to increasing demand in these digital products.
In a report published by Arcane Research on the current state of the institutional crypto investment fund, Grayscale Trust, there is an increasing demand for Bitcoin (BTC) across the U.S. as inflation grows. Throughout 2020, the Fed has undergone several expansionary monetary policies (increasing dollars in the economy), which has forced investors to look towards cryptocurrencies as a barrier against inflation.
Grayscale offers publicly tradable shares with crypto as the underlying asset. Currently, the platform holds over $5 billion in digital assets, which is important as demand from U.S. investors grows. However, these shares are trading at an obscene premium, deviating wildly from actual asset prices. In the past month, Bitcoin, Bitcoin Cash, Litecoin, and Ethereum Trust funds have been trading at a “huge premium.”
The Grayscale Bitcoin Trust (GBTC) holds over $5 billion in assets, roughly 2.3% of the total value of BTC in circulation. Astonishingly, GBTC is trading at a 23% premium compared to BTC’s current price, as demand from retail investors increases. Ethereum Trust (ETHE) holds approx. 1.8% of all ETH in circulation ($873 million AuM), trading at 93.7% premium to the net asset value.
The Grayscale BCH Trust was also launched this Tuesday, 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. pic.twitter.com/uI9OS6xYgV
— Arcane Research (@ArcaneResearch) August 20, 2020
Grayscale’s Litecoin Trust (LTCN) and Bitcoin Cash Trust (BCHG) shares publicly launched three days ago following the April 2018 launch to private accredited investors.
As of Thursday, the LTCN shares were trading at a 753% premium to LTC’s price, with BCHG shares trading at a 351% premium. However, the premium in BCHG has been falling since launch as demand and arbitrage are wiped away from the pair, comparative to LTCN shares.
An Arbitrage That Doesn’t go Away
As mentioned above, such premiums should be arbitraged away. GBTC, for instance, has been trading around 7-40% premiums for the past year, showing a possible broken market. Arcane Research explains the main drivers for these premiums staying out on the market with three main drivers.
First, Grayscale’s products bought by accredited and high net worth clients, are locked up for a period before they are released to the secondary market. On the public market, these investors seek “compensation” for the lockup period.
Second, these funds are the only way U.S. investors can publicly trade cryptocurrencies through their 401k investments. This increases the demand, and hence the price for these assets.
Investors are also safeguarding themselves from the aggressive quantitative easing policies being implemented by the Fed. With an increasing debt-fueled bubble, investors are moving to crypto-assets to prevent the washed value of dollars from the impending inflation.
Finally, a considerable number of these investors may not be aware of the premiums they are paying for hence fueling the prices of the Grayscale Trust shares.