Grayscale, the Digital Currency Group-owned cryptocurrency investment firm, has started to amass abnormally large premiums across its suite of cryptocurrency-based closed-ended funds.
Though its flagship investment vehicle Grayscale Bitcoin Trust (GBTC) remains at a 10% discount to assets under management, other vehicles such as Grayscale Basic Attention Token Trust (GBAT), Grayscale Bitcoin Cash Trust (BCHG) and Grayscale Decentralized Finance (DeFi) Fund (DEFG) are between 40% and 60% and above AuM.
In an extreme example, Grayscale Filecoin Trust (FILG) currently has a market value 700% greater than the $468,500 worth of underlying assets under management.
Though per-share holdings in FILG are worth just $4.21, they are selling on the OTC markets for $34.25.
Meanwhile, Grayscale Chainlink Trust (GLNK) has surged to three times the value of its assets under management.
It is not unusual for closed-ended funds to be valued more than the assets they hold- despite trading at a discount since 2021, shares in Grayscale’s $26 billion GBTC fund had previously snatched 40%-plus premiums.
The bullish crypto market in 2023 has led to healthy premiums on Grayscale’s smaller, more speculative funds, but garnering premiums between three and eight times is abnormal, even in a strong market.
It is unclear what is driving up the premiums on Grayscale products, though buyers may be pushing prices unnaturally higher as they rush into crypto-linked funds to avoid FOMO.
However, unlike buying cryptoassets directly, these investors may be unable to cash out when they want to.
As closed-ended funds, shares in Grayscale’s suite of investment products cannot be redeemed, meaning existing investors must sell them to other investors if they wish to exit their positions.
This causes inefficiencies that could be otherwise arbitraged in a traditional exchange-traded fund (ETF).
For this reason, Grayscale has long lobbied the US Securities and Exchange Commission (SEC) for permission to transform GBTC into an ETF that would be tradeable on the stock market.
For a long time, the SEC has snubbed Grayscale’s requests, but recent legal victories may have turned the tide against the SEC.
Even if, or when, GBTC is successfully turned into an ETF, it will be a long time before riskier, less mainstream cryptocurrencies receive the same treatment.
Until that happens, some Grayscale shareholders may be stuck looking at unrealised gains on their computer screens in an otherwise illiquid market.
Grayscale has been approached for a comment.