In the past month @Grayscale Trust has purchased over 174,000 Litecoin.
This is approx 80% of all Litecoin mined last month… pic.twitter.com/5RmDARZ3dy
— litecoin (@litecoin) March 1, 2021
As of today, the Grayscale Litecoin Trust holds $244.5mn of assets under management (AUM). This makes it the third biggest Grayscale trust after the Bitcoin Trust with $31.2bn AUM and the Ethereum Trust with $4.7bn AUM.
The benefits of investing in Grayscale
Grayscale is a regulated investment company, registering its shares with the U.S. Securities and Exchange Commission (SEC). It operates several single asset and multi-asset cryptocurrency trusts, which are the first digital currency investment vehicles to obtain the SEC’s approval.
The trusts allow accredited investors, usually institutions and high net worth individuals, exposure to cryptocurrency through buying and selling of its publicly traded shares.
Investors trade these shares on the OTCQX, which is an over-the-counter market operating under Alternative Reporting Standards. This means they are not required to register with the SEC.
Buying shares in a Grayscale trust versus buying crypto directly is advantageous because it allows for hassle-free exposure to cryptocurrency. Particularly concerning the safe storage and custody of crypto assets.
There is also the added benefit of more explicit tax rules concerning shares, meaning investors can hold them in particular tax-advantaged accounts, such as a Roth IRA.
There’s a price to pay for investing in the Grayscale Litecoin Trust
But this comes at a price. First, Grayscale charges an annual fee, varying between 2% to 3%, depending on the trust. The Litecoin Trust charges an annual fee of 2.5%.
There’s also the issue of “premium,” which refers to the difference between the value of the holdings of the trust vs. the market price of the holdings. Grayscale’s current Litecoin per-share value is 0.09276776, and with a current LTC price of $175, this means each Grayscale Litecoin Trust share (LTCN) is equivalent to $15.75 of Litecoin. But the current price of LTCN is $319.
That equates to a premium of over 1,900% – a staggering difference to pay versus direct exposure.
Nonetheless, news of Grayscale buying significant quantities of Litecoin suggests that this does not phase institutional investors.
The response to Grayscale buys and (potential) listings have earned the firm a reputation as a bullish market mover. Rumors of a Chainlink Trust triggered a 20% breakout for LINK at the end of January.
Since Litecoin announced the Grayscale buy, the price of LTC made a $10 swing to close yesterday up 6%. Commenting on the relatively modest increase, Litecoin tweeted that OTC orders do not immediately impact the market.