Shares of the Litecoin Investment Trust, or LTCN, of Grayscale Investments, have been trading at a whopping 1,800% premium over the market rate of its underlying asset, Litecoin (LTC).
$ 319 for Litecoin?
This difference is primarily due to the inability of retail investors to purchase shares directly from Grayscale Investments, whose funds are intended exclusively for accredited investors.
It costs $ 319 to buy a share in Grayscale Investments’ Litecoin Trust ($ LTCN). However, its LTC holdings per share are currently worth only $16,42. That means it is almost twenty times more expensive to buy Litecoin through trust compared to regular spot crypto exchanges.
$ LTCN shares have recently traded up to $ 496 per LTC in November 2020, 38% above Litecoin’s highest closing price in December 2017. Although the premium on Grayscale’s Litecoin fund has dropped dramatically in the last three months, $ LTCN shares remain an unattractive investment vehicle for retail traders.
The trust offers exposure to LTC without investors needing to handle or guard cryptocurrencies. But nevertheless, your shares can only be sold by Grayscale Investments to institutional investors.
The unusual spread appears to have been driven by rising retail demand for Litecoin ahead of the launch of the privacy solution MimbleWimble., with Grayscale racking up $ 258 million in LTC so far.
Arbitrage is not really an option
Grayscale’s Litecoin investment trust has aggressively increased accumulation in February, reaching a purchase at a rate equivalent to 80% of the new Litecoin mined in the period.
In the past month @Grayscale Trust has purchased over 174,000 Litecoin.
This is approx 80% of all Litecoin mined last month… pic.twitter.com/5RmDARZ3dy
— litecoin (@litecoin) March 1, 2021
But nevertheless, Anyone thinking of a potential arbitrage opportunity should note that all $ LTCN shares require a one-year holding period after creation. Additionally, the fund requires all investors to be accredited, with a minimum of $ 25,000 to start.
The US-based investment firm also offers a trust for other cryptocurrencies, including Bitcoin (BTC). Grayscale Bitcoin Trust ($ GBTC) is the largest holding of the company, with more than $ 30 billion in assets under management.
In the last days, the Grayscale Bitcoin Trust Fund ($ GBTC) traded at a discount to net asset value (NAV), as the TSX Purpose Bitcoin ETF posted record inflows. Decreased appetite in secondary markets creates potential imbalance, as there is no refund program for Grayscale Trust funds.
If there had been a way to convert those shares back to LTC or equivalent BTC, a market maker would gladly buy the fiat shares at a discount.
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Litecoin is trading at a 1,800% premium through the Grayscale LTC Trust, but why?