Grayscale Trust LTC has a premium of 3687%, how to operate in the market outlook?

金色财经

特邀专栏作者

2020-11-20 19:14 (UTC+8)

This article is about 2046 words, reading the full article takes about 3 minutes

Currently, Grayscale holds a total of 817,221 LTCs.

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Currently, Grayscale holds a total of 817,221 LTCs.

Editor's Note: This article comes fromGolden Finance, reprinted by Odaily with authorization.

Editor's Note: This article comes from

Golden Finance

Golden FinanceETH, reprinted by Odaily with authorization.

This year's cryptocurrency field cannot be avoided, of course, is Grayscale Trust.

Currently, Grayscale holds a total of 516,214 BTCs, accounting for 2.45% of the total;

Not only is GBTC currently at a premium in the market, but the secondary markets of BCHG, ETHE, ETCG, and LTCN have all generated premiums relative to the primary market, and the premium of LTCN is as high as 3687.88%.

The data shows that the Grayscale Litecoin Trust has commanded a huge premium since its launch this year.

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In traditional ETF fund transactions, the trading system of T+0 or T+1 is usually adopted, that is, the ETF fund shares purchased on the same day can be sold on the same day or the next day; For example, if an investor purchases GBTC shares in cash or BTC in the primary market, the obtained shares must be locked for 6 months before they can be traded and sold in the secondary market, which prolongs the time for arbitrage transactions.

So where does the high premium of Grayscale Fund come from?

According to the analysis of William, the chief researcher of Research, there are two main reasons: one is that the arbitrage mechanism is not smooth, and the other is market speculation.

As we mentioned earlier, the generation of risk premium comes from the uncertainty of the future. But what if investors were optimistic about the future? Obviously, in the eyes of investors at this time, the risk premium part is completely risk-free and has become a rare "arbitrage" part.

If we only classify the high premium of Grayscale Fund as a risk premium, it is obviously impossible to fully explain other phenomena. According to relevant reports, since the beginning of this year, the premium of Grayscale Fund’s ETHE reached 220% in February, 550% higher in early April, and 750% in June. Obviously, it cannot be fully explained by risk premium.

After making the assumption that the currency price will rise in the future, in the eyes of many investors, the high premium in the secondary market of Grayscale Fund is completely a free income, so they all buy Grayscale Fund shares one after another. Demand has resulted in higher and higher premiums for funds. Therefore, the high premium of Grayscale Fund also has a strong market sentiment component.

In general, the high premium phenomenon of Grayscale Fund is the product of the unsmooth arbitrage mechanism of Grayscale Fund and the influence of market sentiment. Due to the lock-up policy of Grayscale Fund in the secondary market and the regulation that assets cannot be redeemed in the primary market, the market must pay a certain risk premium to investors; and due to the rising market sentiment, most investors are concerned about the future market. Optimistic, in order to actively obtain this part of the risk premium, grayscale fund shares have been bought one after another, further raising the premium of the fund in the secondary market.

As we mentioned earlier, the generation of risk premium comes from the uncertainty of the future. But what if investors were optimistic about the future? Obviously, in the eyes of investors at this time, the risk premium part is completely risk-free and has become a rare "arbitrage" part.

This is also what is currently happening in the market, because within 1-2 years after Bitcoin is halved, the Bitcoin market tends to have a big bull market, which makes investors very optimistic about the price of Bitcoin half a year later. Likewise, with Ethereum 2.0 approaching, most investors believe that ETH will continue to rise. For LTC, it was after an emoticon tweet posted by its founder Li Qiwei. This magical tweet was interpreted by cryptocurrency players as LTC will surpass BCH soon.

In general, the high premium phenomenon of Grayscale Fund is the product of the unsmooth arbitrage mechanism of Grayscale Fund and the influence of market sentiment. Due to the lock-up policy of Grayscale Fund in the secondary market and the regulation that assets cannot be redeemed in the primary market, the market must pay a certain risk premium to investors; and due to the rising market sentiment, most investors are concerned about the future market. Optimistic, in order to actively obtain this part of the risk premium, grayscale fund shares have been bought one after another, further raising the premium of the fund in the secondary market.
How long will the high premium last?

Take the current hot GBTC or ETHE as an example.

Cash: Buy GBTC or ETHE shares with the same net value in US dollars, etc.,

Investors will be required to lock up for a period of time after subscribing for fund shares. Currently, the lock-up periods for GBTC and ETHE are 6 months and 12 months, respectively. After the lock expires, the investor can deposit the equivalent share of ETHE or GBTC into the brokerage account and sell it at the market price. If the premium is still positive after unlocking, investors will be able to benefit from the difference. In addition, investors need to pay a certain management fee to Grayscale Investment during the holding period.

In each of the above cases, investors have to sell their fund shares in the secondary market. As such, investors are bound to be exposed to spread/premium fluctuations as there is no direct means of hedging. Therefore, although historical data shows that both GBTC and ETHE have experienced extremely high premiums, in the future, the premium space may be compressed and flattened, or even discounted on a certain day.