If we use the data from YCharts to believe, the funds of the great Grayscale are currently sailing through a gigantic storm. Eight funds from Grayscale Investments, the largest asset manager in crypto, are currently trading at a discount of 34 to 69 percent to the value of the assets in the fund.
What is going on?
The Grayscale Bitcoin Trust (GBTC), the Ethereum Trust (ETHE), the Ethereum Classic Trust (ETCG), the Litecoin Trust (LTCN), the ZCash Trust (ZCSH), the Horizen Trust (HZEN), the Stellar Lumens Trust (GXLM) ) and the Livepeer Trust (GLIV) are in trouble. In theory, all funds follow the price of the cryptocurrency they bear as their name.
We speak of a ‘discount’ because the shares of the funds trade below the price value of the assets. For example, if the fund has 10 bitcoin worth $100,000 and the shares are only worth $90,000 combined, the fund is trading at a discount of 10 percent.
This is currently happening on a large scale within the Grayscale funds. The value of the shares goes through the well, while the assets are worth more. According to some, this is an opportunity to buy bitcoin or ether cheaply that way, but it can of course also point to bigger problems.
Grayscale’s bitcoin fund is currently trading at a record discount of 47%
New GBTC record discount of 47% pic.twitter.com/UgdOVDgkbq
— db (@tier10k) December 8, 2022
Does Grayscale have the assets?
If all goes well, we don’t have to worry about the assets themselves. Coinbase has already confirmed that Grayscale does indeed own the assets it claims to own. So the problem is not there. It is possible that institutional investors simply lose faith in bitcoin and want to sell their shares.
Normally, the fund would also have to sell the bitcoin in question, but this is not possible due to the structure of the fund. For example, it is possible that the demand for shares in the Grayscale Bitcoin Trust decreases, without the bitcoin price feeling any of this. The bitcoin itself simply remains in the fund.
Only the stock price falls. In theory, that would mean that the bitcoin price should actually be lower than it is today. If Grayscale had to sell bitcoin, it could cause a major blow. Fortunately, this is not the case and the fund must hold bitcoin and other crypto coins.