Grayscale Investments’ Chainlink Trust has recently reached its highest premium ever, driven by a surge in demand from institutional investors. This trend has been fueled by the approval of 11 Bitcoin spot exchange-traded funds in January, leading to a frenzy in the crypto market.
On March 11, the market price for shares of the Chainlink Trust was $170.99, representing a premium of over 700% compared to the price of LINK on exchanges, which was $20.54 at the time.
The Chainlink Trust was launched in May 2022 and has consistently traded at a premium over the LINK token. This has made it an attractive investment option for institutional investors who are restricted from holding cryptocurrency directly due to regulatory constraints.
However, due to the way Grayscale’s trust products operate, significant price discrepancies are common. For example, the Solana Trust, which provides exposure to the SOL token, recently traded at a 39% premium over the spot price of SOL.
One of the reasons for these price discrepancies is that Grayscale’s trust products cannot be created or redeemed for their underlying assets like traditional exchange-traded funds. This means that when there is an excess supply or demand for trust shares, the price can deviate significantly from the actual value of the underlying assets.
Moreover, those who create new shares in Grayscale’s trusts are unable to immediately sell them on the market, further contributing to price premiums. For instance, in the case of the Chainlink Trust, there is a 12-month lock-up period before new shares can be sold.
To take advantage of the price difference, investors can try arbitrage by creating new shares and waiting for the price to increase before selling them. However, this strategy is risky as there is no guarantee of the price after 12 months.
Another way to eliminate the price gap is by converting the trust to an ETF, which allows for redemption of trust shares for their underlying assets. Although Grayscale’s application to convert its Bitcoin trust to a spot Bitcoin ETF was approved in January, it is unlikely for other crypto assets that have trust products from Grayscale.
In conclusion, while the premium for Grayscale’s Chainlink Trust may seem excessive, it is a result of the current market conditions and the limitations of the trust structure. As the crypto market continues to evolve, it will be interesting to see if Grayscale’s trust products will eventually be converted to ETFs.
