Institutional Investors Paying as Much as 426% Premium on Grayscale Ethereum Trust

Investors in Grayscale's Bitcoin and Ethereum Trusts are feeling the sting of exceptionally high premiums. But with rates reaching as high as 426% for Ethereum, are they justified in exchange for security and exposure?

  • Institutional investors’ account for 71 percent of Grayscale Investment’s inflow
  • The premium on Grayscale’s crypto products is investors paying to not custody their own private keys but still getting exposure to the underlying asset
  • The premium could also be because of the Greenscale's lock-up period putting “structural limits to arbitrage”

Digital Currency Group subsidiary Grayscale Investment’s crypto products are trading at extreme premiums. At the time of reporting, the premium on Grayscale's Bitcoin Trust (GBTC) spiked by over 17%.

The premium went down to 24% this week. Currently, Grayscale Bitcoin Trust investors are paying over $10.50 for the underlying asset worth $9.85.

In comparison to Ethereum (ETH), the premium on Bitcoin shares appear mild. Investors in Grayscale Ethereum Trust Fund (ETHE) are paying a premium as high as 426% to the NAV.

Earlier this week, investors were paying as much as $112 for the underlying assets worth only $21.29.

Each share of Grayscale Ethereum Trust represents 0.09485996 ETH.

ETHE price, Source: TradingView

This demand for Ethereum is from the institutional investors’ side, as 71 percent of the company’s inflow comes from this group.

During an interview from Late February, Managing Director – Michael Sonnenshein had this to say of the increased demand:

“We saw record-breaking investment into Grayscale’s family of products, illustrating continued demand from investors for digital currency access products and with a majority of investment coming from institutions, it’s clear that we’re experiencing institutional adoption.”

Last year, Ryan Alfred, the President of Digital Assets Data, said Wall Street investors are accustomed to custodians holding their assets for them and the premium represents just that: “the amount you’re willing to pay to not custody your own private key, and still get exposure to the underlying.”

Increasing demand from institutions could be the reason behind this surge in price far above the NAV but that's not all.

Arcane Research explains that Grayscale products are structured with a lock-up period, which would explain why markets aren't clearing here, due to “structural limits to arbitrage.”

“A minimum one year holding period will apply to all Shares purchased from the Trust,” according to Grayscale’s annual report from Dec. 2018.

However, this doesn’t mean that markets are inefficient, but it could be that these premiums haven’t been removed for specific reasons. It would be interesting to see how these prices would react when a large number of funds are cleared from their lockup period.

Live Ethereum (ETH) Price:

1 ETH/USD =$236.1101 change ~ -1.41%

Coin Market Cap

$26.25 Billion

24 Hour Volume

$2.55 Billion

24 Hour VWAP

$236

24 Hour Change

$-3.3353

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AnTy
AnTy
AnTy has been involved in the crypto space full-time for over two years now. Before her blockchain beginnings, she worked with the NGO, Doctor Without Borders as a fundraiser and since then exploring, reading, and creating for different industry segments.

[Alert] Use the author's self-conducted information at your own risk, do you own research, never invest more than you are willing to lose.

[Disclosure] The published news and content on BitcoinExchangeGuide should never be used or taken as financial investment advice. Understand trading cryptocurrencies is a very high-risk activity which can result in significant losses. Editorial Policy \\ Investment Disclaimer

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