Analyst: the significance of the bitcoin fund Grayscale is somewhat exaggerated

06/12/2020

Alex Kondratyuk

Messari Researcher RyanWatkins concluded that the investment firmGrayscale Investments buys slightly less bitcoins than is commonly believed. He spoke about some of the principles of the company and the risks of investing in the company's products in a series of tweets.

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“Grayscale has acquired only 31% of the bitcoins mined since the halving. Much less than the 150% many reported. "

As investors are given the opportunityto make deposits directly in cryptocurrency and not in fiat, the fund does not need to buy assets on the spot market. Thus, according to Messari's calculations, since the beginning of the year, Grayscale has bought the equivalent of 8.2% of all issued bitcoins, and after halving - 31.1%.

Watkins also talked about the risks of investing in Grayscale instruments using the example of the Ethereum-based ETHE fund.

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"The peculiar structure of Grayscale products is likely to be the reason why many retail investors are not fully aware of the risk they are exposing themselves to."

The researcher notes that buying ETHEdirectly available only to accredited investors. The latter can purchase shares for fiat money and cryptocurrency. Investors can resell the assets of funds in the secondary market only after 12 months.

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Watkins notes that in the secondary marketthere are usually many buyers of Grayscale stock and few sellers. Consequently, investors can easily push the stock price well above the value of the underlying asset.

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The unlinking of the share price from the underlying asset value creates "significant arbitrage opportunities" for accredited investors who "can create new shares in the primary market."

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According to Messari, ETHE has a margin of over 750% over its underlying Ethereum.

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“This means that investors in the secondary market are buying the underlying ether for $ 2,095. This is 46% higher than the all-time high of the ETH price! "

This situation, Watkins is sure, is fraught with serious risks for the holders of financial assets from Grayscale.

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“The premiums not only cause secondary market investors to buy ETH at absurd prices. They also run the risk of high volatility given the range of premium fluctuations. ”

Recall that the volume of assets under the management of Grayscale Investments reached $ 4 billion.