Discounts on Non-Bitcoin Crypto Trusts Narrow
The gap between the price of the $23 billion Grayscale Bitcoin Trust (GBTC) and its net asset value narrowed to 11% last week as hopes for a spot bitcoin ETF reached a fever pitch. But GBTC isn’t the only quasi-closed-end cryptocurrency fund seeing its discount drop.
The competing Osprey Bitcoin Trust (OBTC), which has $100 million in assets under management, is trading only 7% below its net asset value, the smallest discount in over a year.
The difference between the price of the $6.1 billion Grayscale Ethereum Trust (ETHE) and its NAV is now 16%, down from 60% in December, while the gap between the price of the $227 million Grayscale Ethereum Classic Trust (ETCG) and its NAV is now 44%, down from 77% in December.
Meanwhile, the $106 million Grayscale Litecoin Trust (LTCN) and the $70 million Grayscale Bitcoin Cash Trust (BCHG) are trading with premiums of 5% and 2%, respectively, after sporting discounts of around 60% at the start of the year.
The fast-disappearing discounts on these trusts is a reflection of investors’ expectations that the launch of a spot bitcoin ETF is imminent.
A successful ETF conversion would open GBTC up to redemptions, instantly bringing its market price in-line with its net asset value.
What Comes After Bitcoin?
But a potential greenlight for spot bitcoin ETFs would have a direct impact only on GBTC. The ability to arbitrage away the discounts on the other trusts would still be lacking.
Of course, investors probably believe that a spot bitcoin ETF would be followed by spot ETFs tied to other cryptocurrencies.
You can certainly make the case that a spot ether ETF won’t be far behind a spot bitcoin ETF. Ethereum futures trade on the Chicago Mercantile Exchange and the Securities and Exchange Commission recently okayed ETFs tied to those futures contracts. A spot ether ETF isn’t much of a stretch.
What is more of a stretch are ETFs tied to other cryptocurrencies, such as litecoin and bitcoin cash. There are no futures contracts on the CME tied to those cryptocurrencies, and so the SEC can—and likely will—make the case that these should be treated differently than bitcoin and ether.
It’s hard to imagine a litecoin, bitcoin cash or dogecoin ETF launching anytime soon.
And that’s what makes the price action in LTCN and BCHG ironic. They’ve been acting even better than GBTC and ETHE, even though a conversion of those trusts into ETFs is still far-fetched.
