Cryptocurrency Research Firm Messari has debunked claims of Grayscale adding over 30,000 BTC to their Bitcoin Trust since the halving. On the 5th of June, ZyCrypto reported on claims of Grayscale securing over $279 million worth of Cryptocurrencies, particularly Bitcoin from investors since the Bitcoin halving event that took place four weeks ago. However, according to new research from Messari’s Ryan Watkins, it appears that the leading Cryptocurrency investment platform has purchased way less Bitcoin than what was reported.
Grayscale has only purchased 31% of all new bitcoins mined since the halving
More precisely, the research claims that Grayscale has only bought 31% and not over 150% of all the Bitcoins mined since the halving event, this includes “in-kind” purchases.
Grayscale buys way less #Bitcoin than many would think.Factoring in “in-kind” purchases, Grayscale has only bought 31% of all new bitcoins mined since the halving, far less than the 150%+ many have reported.This is just one of many misconceptions about Grayscale’s trusts.1/ pic.twitter.com/PGgyJaKiH9— Ryan Watkins (@RyanWatkins_) June 11, 2020
As seen on the official Grayscale website, the “FAQ” section noted that “Existing and prospective investors may contribute coins in kind for shares of Grayscale’s single-asset Products”, thus affirming that the investment firm did not secure the earlier reported amount of funds.
While Grayscale did not affirm or debunk the claims, Messari is reporting that asides from the misinformation in investment funds for the past one month, the structure of Grayscale’s product leaves retail investors at the likelihood of misunderstanding “additional risk they’re exposing themselves to.”
Inflation of premium prices for Cryptocurrency exposure
On Grayscale’s Ethereum trust, accredited investors can access ETHE shares. These shares can be created in “kind” either with cash or Cryptocurrencies. After one year of holding, the involved investors can proceed to sell the shares to the general public on secondary markets, according to a “144 exemption rule”.
However, if and when the number of buyers exceeds the number of sellers in the market, the investors trading on the secondary market can go on to inflate the current prices of the shares to make them higher than the underlying worth of the Cryptocurrencies, which then creates a premium to the underlying value.
Because there are no new incoming shares, there are also no new Cryptocurrencies entering Grayscale’s trust. This allows for the creation of new shares by the initial investors in the primary market thereby giving these accredited investors an opportunity to benefit from the price difference in both shares.
These premiums have continued to grow in price, leading investors to believe that the ETHE premiums match the underlying value. Investors are said to be paying more than 750% premium for ETH exposure. More precisely, the investors on the secondary market are paying a sum of $2,095 for ETHE’s ETH underlying value. A graph from messari shows that the price is currently 46% more than ETH’s all time high.
The ETHE premium has gotten so high that investors are now paying a 750%+ premium for exposure to ETH. What this means is that secondary market investors are buying ETHE’s underlying ETH at an implied price of $2,095. This is 46% above ETH’s ATH! pic.twitter.com/CDl7280jSC— Ryan Watkins (@RyanWatkins_) June 11, 2020
These exaggerated premiums are supposedly causing investors on the secondary market to continually buy Ethereum exposure at outrageous prices, which plays a huge role in increased volatility as well as instability in premiums.
While Messari specifically terms the ongoing event as a misunderstanding amongst investors, at the time of this writing, Grayscale is yet to publicly make any statements relating to the research reports.
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