Litecoin trades at 1,800% premium via Grayscale’s LTC trust – but why?

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Grayscale Investments’ Grayscale Litecoin Trust (LTCN) shares traded at a premium of 1,800% above the market price of their underlying Litecoin (LTC).

319 USD per Litecoin?

This difference is mainly due to the inability of retail investors to buy stocks directly from Grayscale Investments, whose funds are designed for accredited investors only.

LTC holdings per LTCN share (orange) and premium (blue). Source: Bybt.com

It costs $ 319 to buy a share of the Grayscale Litecoin Trust. However, the LTC inventory per share is currently only $ 16.42. This means that buying Litecoin through the trust is almost 20 times more expensive than the regular spot exchange.

LTCN shares recently traded for up to $ 496 in November 2020 – 38% above Litecoin’s highest closing price in December 2017. Although Grascale’s Litecoin fund premium has dropped dramatically over the past three months, LTCN shares remain an unattractive investment vehicle for retailers.

The trust offers exposure to LTC without the need for investors to manage or hold cryptocurrency. However, only Grayscale Investments can sell its shares to institutional investors.

The unusual spread appears to be due to increasing retail demand for Litecoin prior to the launch of the Mimblewimble privacy solution. Grayscale has accumulated $ 258 million in LTC to date.

Arbitrage is actually not an option

Grayscale’s Litecoin Trust aggressively increased accumulation in February, purchasing 80% of the new Litecoin that were mined during the reporting period.

However, anyone thinking about a potential arbitrage opportunity should note that all LTCN shares require a one-year holding period after their inception. The trust also requires all investors to be accredited, with a minimum of $ 25,000 required.

The US-based investment firm also offers trusts for other cryptocurrencies, including Bitcoin (BTC). The Grayscale Bitcoin Trust (GBTC) is the company’s largest holding, with over $ 30 billion in assets under management.

For the past few days, the Grayscale Bitcoin Trust has traded at a discount to net asset value as the TSX Purpose Bitcoin ETF posted record inflows. Decreased appetite in secondary markets creates a possible imbalance as there is no redemption program for the grayscale rust funds.

Had there been a way to convert these stocks back into their LTC or BTC equivalents, a market maker would be happy to buy the trust stocks at a discount.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading step is associated with risks. You should do your own research when making a decision.