The crypto trust funds offered by institutional trading platform Grayscale are traded at an enormous premium, with institutional investors paying $1000 per Ethereum (ETH).
At the time of writing, the cryptocurrency trades at $600, and other altcoins are seeing similar premiums. Is this a sign that institutions truly believe in a bull run or that Grayscale is completely inefficient?
Following news of Grayscale announcing that it will revise the Grayscale Ethereum Trust (ETHE), an Ethereum enthusiast pointed out that the investment fund hosts enormous premiums.
Based on a Crypto Twitter account called ‘Grayscale Invest Bot’ we see that institutional investors pay around $1,000 per ETH. At the time of writing, one such token costs only $600 on the open market.
The situation is no better for other major cryptocurrencies. Litecoin (LTC) trades at the highest premium at 5,350%. This altcoin is followed by Bitcoin Cash (BCH) with a 1,240% premium and Ethereum Classic (ETC) at 56.5%. Despite being the most popular option, Bitcoin (BTC) has the lowest premium at only 30.6%.
Traditionally named ‘smart money,’ the crypto community is bewildered that institutional investors are ready to pay for digital assets at these prices.
In fact, the Grayscale Bitcoin Trust fund represents one of the largest holders in all of crypto. The fund holds more than 500,000 BTC, valued at $9.6 billion at the time of writing. This amount accounts for 2.69% of Bitcoin’s entire supply and market cap.
Far stranger, 50% of this fund has been bought not during the previous years when Bitcoin has bottomed out. As a matter of fact, institutional investors have contributed half of the fund’s valuation in 2020 alone. Such aggressive buying pressures lead us to believe that ‘smart money’ may be more bullish than retail investors.
Grayscale Ethereum Trust (ETHE) to revise shares
Grayscale announced this week that it has revised the system for its Grayscale Ethereum Trust (ETHE). From now on, shareholders will receive eight ETHE shares for each ETHE that they own. Basically, the new system values the shares at ninth the value and price of the currently owned shared.
According to Grayscale, it has made this decision in order to increase liquidity. Moreover, such a system would supposedly make the shares appear more affordable. These measures will go online starting from December 17.
It remains unknown whether the new system for shares will have any effect. However, investment funds had success in the past with improving liquidity by using this method.
Whatever the case may be, it is still highly strange to see any investors be willing to purchase cryptocurrencies at such high prices. According to some investors on Crypto Twitter, these premiums are temporary and will at one moment disappear. One user used the example of Ethereum which has drastically increased in price since July and has eliminated most of its premium.
In another tweet, the experienced investor claimed that a future BTC ETF would lead to Grayscale’s premiums disappearing overnight. By then, it seems that institutional investors will have to buy at incredibly high prices.
As Defiye reported this week, one researcher from Messari wrote a lengthy overview of why Ethereum 2.0 will make ETH a highly unique asset. According to him, a combination of three monetary aspects which includes staking will highly contribute to the asset’s price. If true, institutional investors may indeed have a reason to buy ETH at $1000.