Crucial To Understand Exactly What You Own


If you know about Bitcoin then you probably know about the Grayscale Bitcoin Investment Trust (GBTC) which provides easy access to Bitcoin in a brokerage account. If you know about Bitcoin then you probably know about Ethereum which is the second largest cryptocurrency. This week, the Grayscale Ethereum Classic Investment Trust (ETCG) started trading and while Ethereum is available through several sources, ETCG allows for easy access in a brokerage account.

I found out about it right before the close on Thursday and tweeted about it shortly after the close. It closed Thursday at $27.50 and started Friday in the $28's. When I checked back in late on Friday its was in the $40's having gone briefly into the $60's. Was something going on with the underlying cryptocurrency which you can find on Yahoo Finance at ETC-USD? There sure was, it was dropping like a stone. How could the fund skyrocket higher while the underlying crypto plummeted? Here's a screen shot from Grayscale's site well after the Friday close;

What this means is that it cost $42 to buy $17.54's worth of Ethereum if you buy Ethereum via ETCG. The nature of the trust's structure (this pertains to both ETCG and GBTC) is that supply and demand dynamics in the equity market can disconnect dramatically from the underlying thing it is tracking. The technical reasons is the trusts have a fixed number of shares so supply constant an increase in demand can push the price up. It can also work the other the share which now are said to be trading at a premium can also trade at a discount. This is how closed end funds trade if you've ever heard that term before.

There is no reason that someone buying it at $42 today can't make a ton of money but there is clearly a lot of added risk beyond the fundamentals (or whatever drives the price of Ethereum) paying 150% over fair market value. If the trade interests you, Grayscale provides this info every day with a one day lag but as linked above you can quote Ethereum directly and compare it to ETCG.

When you buy a investment product, you've got to take the time to understand how it works.