I covered the topic of BCHG (Grayscale's Bitcoin Cash Trust) in a previous article ("Grayscale & Bitcoin Cash - BCHG") but I didn't discuss in depth the high premium of this asset in the OTC Market.
Grayscale offers an investment structure for funds, corporations, institutions, and accredited investors, providing exposure in Cryptocurrency assets.
Grayscale buys according to its clients' wishes. It holds the cryptocurrencies in its custody and gives investors shares that represent these crypto assets. This is how a "Trust" works and the first Trust created by Grayscale was the Grayscale Bitcoin Trust.
These Trust shares of crypto assets offered by Grayscale have a lockup period between 6-12 months depending on SEC's approval and after that period ends investors can trade them in a regulated OTC market (OTCQX).
Grayscale, except BTC, offers a large variety of Crypto-Trusts with Bitcoin Cash being one of the top-selected by Grayscale's investors.
BCHG - Grayscale Bitcoin Cash Trust
Source: Grayscale's Twitter
The product name is Grayscale Bitcoin Cash Trust.
*AUM stands for: Assets Under Management. Bitcoin Cash is one of the most invested assets under Grayscale's management.
The table above is taken from Grayscale's report on April, 23th, 2021, when the price of BCH in the crypto markets was down by 14%. On the same day, the price of BCHG was down only by -8%, suggesting increasing institutional interest in the OTC market.
Crypto Markets in decline
Last week we witnessed a sharp decline in prices of crypto assets and a massive selling mostly due to concerns for the BTC network stability and reliability.
Bitcoin Cash by having very low fees (below $0.01) all this time, has proven that it is a reliable and efficient decentralized blockchain network. The crypto markets are still locked to BTC's performance and Bitcoin Cash did not manage to escape this downtrend. It wasn't expected for the time being, as we know that even Bitcoin Cash will follow Bitcoin, at least for the time being.
BCHG Premium in OTC
A very important factor for BCHG is the price of the Grayscale Bitcoin Cash Trust, which is trading in the OTC market at a very high premium to NAV. (*Net Asset Value).
Source: Bybt
Grayscale currently holds more than 293,000 Bitcoin Cash.
BCHG (Bitcoin Cash Trust) is the OTC exchange ticker for the Grayscale Bitcoin Cash Trust.
Each share of BCHG represents 0.00924316 BCH. The price for BCHG should be close to $7,40 (if we divide $800 with 0.00924316 BCH) and this is the current price investors are paying for exposure in Bitcoin Cash using Grayscale's Trust.
The price of BCHG closed this Friday at $26.57, at a premium of 260%.
Grayscale BCHG Investment Holdings Stable
Source: Bybt
The interest from institutional investors in BCHG has not increased lately and Grayscale BCH holdings were stable for March and April. BCHG didn't see new institutional investors for the last two months, but its price in the crypto markets and the OTC market performed incredibly.
Price action of BCHG
Source: OTCMarkets
BCHG volumes in the OTC market are experiencing high volumes and the trading activity comes at prices two and three times higher than those in the cryptocurrency exchanges. Currently, there is huge buying interest in the OTC market for two of the top-five Grayscale Trusts.
BCHG and LTCN (Litecoin) are trading at huge premiums, while GBTC and ETHE, and ETCG (Ethereum Classic) are trading at a discount.
The premium
The premium can be better identified in the following chart provided by Grayscale:
Source: Grayscale
This is the price action of BCH with green and BCHG with gray. A whopping 260% premium creates an arbitrage opportunity that increases as long as the OTC institutional market keeps buying in a frenzy mode.
But arbitrage with Grayscale products always comes with a risk. Newly invested BCHG shares come with a lockup period of 12 months before investors can sell. One year of waiting to sell at a premium comes with the risk of asset prices dropping and the premium vanishing in this 12 months timeframe.
Trading of BCHG on OTC Markets Group Inc. (OTCQX: OTCM) started just the previous year, on August 20th, 2020 and since then is trading at a premium.
GBTC - Grayscale Bitcoin Trust
While Bitcoin Cash is trading at an enormous premium by institutions, BTC on the other hand is trading at a huge discount.
In the time of writing of my second Grayscale-related article, ("GBTC - Institutions dumping Bitcoin in OTC"), Bitcoin was trading at a discount for the first time since its inception back in 2013.
It is currently two months of GBTC trading at prices way lower than the price in the crypto exchanges.
Source: Yahoo Charts
Not only GBTC is trading this low in the OTC Market, but also trading at a double-digit discount to NAV for the last week.
This fact is alarming and could be another reason for the declining prices of BTC since its ATH at $65,000.
Final Thoughts
With GBTC turning negative for such a long time, this indicates a higher than anticipated risk to use Grayscale Trusts for arbitrage trading.
Buying now and selling GBTC six months later for a premium, includes increased risk. It is not known if the OTC Market price of GBTC will recover to previous premiums. "Institutions" are dumbing GBTC right now, taking profits from their six-month investments.
On the other hand, BCHG (Bitcoin Cash) is still looking to have a great premium that holds quite well, even during market and price disturbances. Bitcoin Cash is an established crypto asset for the financial world and is respected for its continuous development and high adoption levels. It is not just viewed as a store of value, but mostly as a means of exchange.
Besides the existing risk of premiums turning negative, the volatility of the market and the critical factor of the crypto market cycles are also important to consider.
Currently, we are in a bull market, however, history has proven that the price of BTC and other crypto assets will reach a final stage of growth, and will then fall sharply to prices 80-95% lower. Maybe we are close to the top or have already reached it. At the time of writing, BTC lost another $2000 and is now trading below $48,000 casting doubts for the current bull run.
Considering everything, Grayscale investing, when timed correctly, is a perfect financial instrument for institutions and accredited investors. Bitcoin Cash and Ethereum should be part of the "crypto" portfolio of any fund and individual that wants exposure in cryptocurrencies, for these assets have a disruptive potential for the future of finance.
Bitcoin Cash is now being noticed for its potential to become a widely used digital currency, and for its limited supply, that just like BTC is giving the same store of value characteristics to Bitcoin Cash, making it a strong contender.
Lead Image Source: Grayscale
Currently active on the following networks:
Little something that Core censors don't like to share the fact that also institutional investors and the rich are also interested in Bitcoin Cash as well, now almost everyone just want to concentrate with Micro Strategies meanwhile the rich very silently are buying Bitcoin Cash using Grayscale and not doing a fuss about it.
I think that it should be our job the writer of read and noise cash to bring that to attention so that the regular people stop selling their precious BCH satoshis to the rich and just use it if they must or save it for a rainy day.
I will write an article once I do sufficient research in that topic.