Grayscale Bitcoin Cash, Litecoin Trusts are trading at massive premiums

For some retail investors, Grayscale's publicly traded trusts are the only way to get exposure to cryptocurrencies, says Arcane Research.

By Robert Stevens

Aug 20, 2020

3 min read

Image: Shutterstock

In brief

Two Grayscale Trusts, one for Litecoin and the other for Bitcoin Cash, started publicly trading this week.
They are both now trading at massive premiums.
But it's the only way some retail investors can get exposure to cryptocurrencies, says Arcane Research.

Early investors in the assets locked up in the Grayscale trusts for Litecoin and Bitcoin Cash are making immense profits just two days after the trusts started trading publicly.

The Grayscale Litecoin Trust is trading at a premium of 753%, according to data produced by Arcane Research, since its Monday launch. The Grayscale Bitcoin Cash Trust, which launched at the same time, is trading at a premium of 351%.

The Grayscale Litecoin Trust became publicly traded this Tuesday 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. pic.twitter.com/Kcq8ZI6qz8

— Arcane Research (@ArcaneResearch) August 20, 2020

The Trusts, which opened in April 2018, solicited accredited investors (i.e. very rich), who so far have forked up $29.2 million for the Bitcoin Cash Trust and $19.5 million for the Litecoin Trust. Grayscales handles the paperwork and security.

Then, on Monday, Grayscale made these trusts publicly tradable. This meant that the underlying assets in the trusts would be traded like stocks. This allows buyers to invest in cryptocurrency, in this case Litecoin and Bitcoin Cash, without actually having to go through the trouble of purchasing the actual coins from an exchange and holding those funds themselves.

But why would the shares trade at a premium if the shares represent the underlying cryptocurrency?

According to Arcane Research, one of the main reasons is that trading these funds is the only way American retail investors (i.e. regular Joe Schmoes) can invest in cryptocurrencies through their 401Ks.

So, the main drivers of the Grayscale premiums are:

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.

— Arcane Research (@ArcaneResearch) August 20, 2020

The high premiums for the Litecoin and Bitcoin Cash Trusts are shared with other cryptocurrencies. Currently, the Ethereum Trust is trading at a 93% premium, and in early June traded at a 804% premium, according to Arcane. The Bitcoin Trust is currently trading for a 23% premium, it found.

“The premiums show that the public demand for crypto exposure is high, and that the market is ripe for an ETF,” said Arcane.

An ETF, or exchange-traded fund, is a financial product that lets people buy shares in indexes that track baskets of assets. The SEC has several times rejected proposals for a Bitcoin ETF on the grounds that the crypto and Bitcoin market is still rife with manipulation.

“There are, in fact, ways to work with regulators on the asset class within existing frameworks, but they’re just not ready to approve an ETF yet,” Grayscale’s managing director, Michael Sonnenshein said in an interview last month.

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