Another Crypto ETP...To Be Wary Of

Make sure you understand how an ETP works before you buy it.

Grayscale Tweeted that another of its products is available for trading. The Grayscale Digital Large Cap Fund will trade with symbol GDLCF and track a basket of cryptocurrencies that per another Tweet currently breaks down as Bitcoin 80.3%, Ethereum 9.9%, Ripple 5.8%, Bitcoin Cash 2.2% and Litecoin 1.8%.

The Grayscale products are not ETFs. Shares are issued to institutional investors at NAV (subject to whatever fees charged) and those investors are then able to sell them on the open market as they see fit. On the open market the shares can trade at a premium or discount to NAV (they call it digital asset holdings per share). Usually shares trade at a massive premium which we've addressed in previous posts.

According to the Grayscale site, the NAV for GDLCF on Friday was $5.18 per share. When I went to TD Ameritrade quote page it showed no volume with the following bid ask spread.

As the Grayscale Ethereum Trust (ETCE) was waiting to trade it also showed a wacky quote with the first trades occurring at a premium in the hundreds of percents above NAV. There is visibility for that to be the case with GDLCF. Conceptually, I am all for the asymmetric risk opportunity for certain investors (IMO one of the cryptos has just as good a chance as going to one of the crazy high price targets as going to zero) but paying $50 for $5 worth of crypto is not a trade I would want to make.

At the very least, you should know how much you're paying for $5 worth of crypto and with the above link there's no reason not to know.

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