With Bitcoin (BTC -0.14%) 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 -0.12%), Grayscale Ethereum Trust (ETHE -0.88%), and Grayscale Ethereum Classic Trust (ETCG 2.72%) 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.