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There's One Grayscale Crypto Play You Shouldn't Buy Right Now

By Rick Munarriz - Apr 27, 2021 at 9:05AM

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Two popular crypto trusts run by Grayscale are compelling buys here. Stay away from a third one.

There's a growing number of ways to buy into cryptocurrency without having to stake your claim directly in digital tokens. Grayscale is a pioneer in developing trusts and funds that own positions in Bitcoin (BTC -4.81%), Ethereum (ETH -9.30%), and other next-gen digital currencies.

Grayscale has more than $40 billion in assets under management. It's two most popular investments are Grayscale Bitcoin Trust (GBTC 0.53%) and Grayscale Ethereum Trust (ETHE -2.28%), giving the crypto hungry a way to buy into an exchange-listed vehicle that owns Bitcoin and Ethereum, respectively. They're not perfect -- and we'll get to the at shortly -- but then we get to Grayscale Digital Large Cap Fund (GDLC -4.79%). After you work the math you will want to avoid the diversified crypto fund until the valuation makes more financial sense. 

A man in a suit ripping it off to show a Bitcoin emblem on an undershirt.

Image source: Getty Images.

Tales from the crypto 

Grayscale Bitcoin Trust and Grayscale Ethereum Trust are pretty straightforward as investment vehicles. The middle name says it all. Grayscale Bitcoin Trust invests solely in the world's most popular cryptocurrency, and right now each share is backed by 0.000944102 of Bitcoin. A few years ago the trust would trade at huge premiums to its actual portfolio, but now that mainstream investors have so many popular exchanges and marketplaces for digital currencies it often trades at a discount. 

With the leading crypto at $54,100 by the time that the stock market closed on Monday, each share of the trust was worth $51.08 in cold-stored Bitcoin tokens. With Grayscale Bitcoin Trust closing at $45.94 on Monday it's fetching a tempting 10% discount to its Net Asset Value. 

Ethereum has been the hotter of the two cryptos over the past year. There's also the scarcity of stock exchange-traded plays on Ethereum despite its growing appeal given the real-world functionality of its blockchain technology strengths, making it less likely than Grayscale Bitcoin Trust to trade at a discount.

The math is kind right now with Grayscale Ethereum Trust closing at $25.50 on Monday. With 0.010214478 in Ethereum per share and the crypto at $2,494 at Monday's stock market close -- crypto never stops trading, but I'm lining everything up to the closing bell so the trusts match the digital currency -- we're talking about $25.47 of Ethereum for every share the trust. Grayscale Ethereum Trust is basically trading at its Net Asset Value. 

A big knock on these trusts is that they come with high annual expenses. Grayscale takes 2% a year out of Grayscale Bitcoin Trust and the fee goes up to 2.5% for most of its other investing products. In other words, the exchange ratios will shrink by 2% to 2.5% a year to cover the cost of running the trust. However, it's not as if buying into crypto directly is cheap. Unless you plan to hold your crypto for more than a year buying either of these two Grayscale trust's right now is a smart call. I own a little of both .

These two trusts are the largest Grayscale offerings by far, accounting for more than $40 billion in combined assets right now. The offerings get a little dicey after that, and this brings us to Grayscale's third largest offering the $500 million Grayscale Digital Large Cap Fund.

Gray matter

Grayscale Digital Large Cap Fund is the crypto pioneer's first shot at a diversified fund. It owns a piece of five digital currencies. 

  • 0.00046552 of Bitcoin
  • 0.00287223 of Ethereum
  • 0.00046802 of Bitcoin Cash (BCH -4.25%)
  • 0.00166069 of Litecoin (LTC -3.73%)
  • 0.00972432 of Chainlink (LINK -6.39%)

It's exciting to have exposure to five different rising cryptocurrencies -- even with a 2.5% annual fee -- in a single basket. The rub here here is that the sum of all of its parts was $32.01 at Monday's close. The fund at $37.09 is a nearly 16% premium. 

The mark-up used to be higher. It closed at a 39% premium on April 15. It spent a good chunk of late last summer trading at more than three times its Net Asset Value. Grayscale Digital Large Cap Fund is not outrageously priced historically speaking, but it's still an expensive basket of crypto. Bitcoin and Ethereum make up more than 96% of the value in the fund, and you can buy into either one without paying a premium right now through Grayscale's two largest trusts. Paying a hefty premium for exposure to three smaller cryptocurrencies that combine for less than 4% of the asset mix doesn't make sense.

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Stocks Mentioned

Grayscale Bitcoin Trust (BTC) Stock Quote
Grayscale Bitcoin Trust (BTC)
$13.32 (0.53%) $0.07
Grayscale Ethereum Trust Stock Quote
Grayscale Ethereum Trust
$7.72 (-2.28%) $0.18
Bitcoin Stock Quote
$19,138.97 (-4.81%) $-966.56
Ethereum Stock Quote
$1,023.16 (-9.30%) $-104.92
Grayscale Digital Large Cap Fund LLC Stock Quote
Grayscale Digital Large Cap Fund LLC
$7.15 (-4.79%) $0.36
Bitcoin Cash Stock Quote
Bitcoin Cash
$99.14 (-4.25%) $-4.41
Litecoin Stock Quote
$50.43 (-3.73%) $-1.95
Chainlink Stock Quote
$5.97 (-6.39%) $0.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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