Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

You Can Buy Bitcoin and Other Crypto at a Discount

By Rick Munarriz - Oct 20, 2021 at 11:45AM

Key Points

  • Grayscale single-asset cryptocurrency trusts trade for as much as a 43% discount to their underlying tokens.
  • The SEC opening the door for the first Bitcoin futures ETF could open the door for Grayscale conversions.
  • High fees and crypto volatility mean there is no free lunch here, but it is a way to get more bang for your crypto buck right now.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Exchange-traded trusts are trading for less than the cryptocurrency denominations they're holding. There's a catch. There may also be a release.

With Bitcoin ( BTC -0.23% ) approaching all-time highs and the first crypto ETF hitting the market on Tuesday it's understandable if you're looking for some skin in the game. The cryptocurrency market is risky, of course. Volatility cuts both ways. Stock investors can't lean on the conventional valuation metrics the way they do in the equities market. 

One trick is to buy Bitcoin and other rising digital currencies at a discount. It's not a perfect stunt -- and I'll address the shortcomings -- but it's something to consider if you want to get more bang for your risk-tolerant buck. It all boils down to a series of publicly traded trusts run by Grayscale Investments, a company that's been in business since 2013 to give investors easy access to various cryptocurrency denominations.

A golden coin with a Bitcoin logo going into a golden piggy bank.

Image source: Getty Images.

A matter of trusts 

The crypto market celebrated the arrival of the first Bitcoin ETF on Tuesday, but the fund doesn't technically own the token itself. ProShares Bitcoin Strategy ETF actually owns Bitcoin futures, swapping them out for fresh futures as they approach maturity. Grayscale Bitcoin Trust ( GBTC 0.22% ), Grayscale Ethereum Trust ( ETHE 2.50% ), and Grayscale Ethereum Classic Trust ( ETCG 3.81% ) actually own Bitcoin, Ethereum, and Ethereum Classic, respectively. 

The Grayscale trusts are able to own crypto under the existing regulatory framework that allows them to trade on the public exchanges as Securities and Exchange Commission reporting companies. They operate as trusts, and while often confused by as investors as ETFs, they trade more like closed-end funds, typically swinging to premiums or discounts to their net asset value (NAV). Right now, all three happen to be trading at significant discounts to their underlying investments.

Grayscale Bitcoin Trust is a household name for crypto investors. It's the largest publicly traded cryptocurrency vehicle with $40.5 billion in cold-stored Bitcoin under management. Even Cathie Wood's ARK Invest is major investor, giving some of her ETFs direct Bitcoin exposure through a stock exchange-listed vehicle. Grayscale Bitcoin Trust once traded at a lofty premium to its assets, but it's been trading at a discount since early this year. The stock closed at $48.81 on Tuesday, but every share is backed by $58.50 in Bitcoin, a nearly 17% discount. It's that way for most of the Grayscale trusts. 

Trust 10/19/21 Close 10/19/21 NAV Discount
Grayscale Bitcoin Trust $48.81 $58.50 (16.6%)
Grayscale Ethereum Trust $35.52 $38.23 (7.1%)
Grayscale Ethereum Classic Trust $26.05 $45.98 (43.3%)

Data source: Grayscale Investments.

Grayscale Ethereum Trust is the firm's second-largest trust with $11.9 billion in assets under management, fittingly enough since Etherum is the planet's second-largest cryptocurrency with its strengths in blockchain and smart contracts. The trust trades at a smaller discount, but it was routinely fetching a market premium to its Ethereum until this summer.

I'm closing out the list with the much smaller Grayscale Ethereum Classic Trust with less than $650 million in assets. Ethereum Classic is not Ethereum. It's a less widely owned crypto that was spun off -- or forked -- from Ethereum in 2016. It has not performed as well as its more popular sibling, but the trust's 43% discount to the Ethereum Classic it owns is pretty stunning. 

The trusts aren't perfect. They have steep annual management fees between 2% and 3%. There is also no guarantee that the discounts will narrow, and if anything they may continue to widen. However, this could have a happy ending for investors. Now that a futures-based crypto ETF has the SEC's blessing, it's just a matter of time before spot-based investments -- that own the actual cryptocurrencies -- clear the hurdle. Earlier this week Grayscale reiterated plans to convert Grayscale Bitcoin Trust into an ETF as soon as it's formally cleared by the SEC. If it follows through with the rest of its investments the narrowing discounts can create a windfall in the ETF conversion. The rub here is that it may take a long time for those hurdles to be cleared, and in the meantime the hefty annual fees and cryptocurrency market fluctuations will make sure that there's no free lunch. You can buy stakes in single-asset crypto investments at a discount, but there are no guarantees that you will ever be made whole. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Grayscale Bitcoin Trust (BTC) Stock Quote
Grayscale Bitcoin Trust (BTC)
GBTC
$40.19 (0.22%) $0.09
Grayscale Ethereum Trust Stock Quote
Grayscale Ethereum Trust
ETHE
$41.42 (2.50%) $1.01
Bitcoin Stock Quote
Bitcoin
BTC
$50,531.82 (-0.23%) $-118.28
Ethereum Stock Quote
Ethereum
ETH
$4,389.44 (1.84%) $79.26
Ethereum Classic Stock Quote
Ethereum Classic
ETC
$40.77 (2.74%) $1.09
Grayscale Ethereum Classic Trust (ETC) Stock Quote
Grayscale Ethereum Classic Trust (ETC)
ETCG
$21.41 (3.81%) $0.79

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
652%
 
S&P 500 Returns
142%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/08/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.