Institutions are buying Litecoin (LTC) at a 1,200% price premium
Litecoin demand among institutional investors on Grayscale Investments surged last week ahead of the protocolâ€™s Mimblewimble upgrade and as fears of inflation have risen among US investors, as per reports.
Litecoin sees 1,000% premiums
Data from on-chain analytics firm Arcane Research showed Litecoin briefly traded at a 1,200% premium on Grayscaleâ€™s newly launched Litecoin trust. The occurrence also led some market observers to question if the broader cryptocurrency had indeed matured after the 2017 ICO mania.
The Litecoin fund is a part of Grayscaleâ€™s crypto products meant for accredited investors to gain exposure to cryptocurrencies. They are collectively worth billions of dollars and can be traded on the open market as an over-the-counter product, similar to traditional stocks.
Since Arcaneâ€™s report, the premium for Litecoin has gone down to 600% â€” which is still massively high compared to the assetâ€™s spot prices on crypto exchanges.
Arcane Research analyst Vetle Lunde explained the high premiums, â€œThese trusts are based solely on single assets, and should thus not outperform its underlying asset over time,â€ he wrote.
Lunde added that the fundsâ€™ premiums emerge as public investors buy into existing shares of the fund, with the original accredited investors being the sellers.
However, the huge and wildly swinging premiums have caused some concern for bitcoin and cryptocurrency market watchers who fear investors might be unaware of the premium theyâ€™re paying, explained Lunde:
â€œThis could make new investors more open to allocating some of their portfolios into Bitcoin,â€ the analyst added.
Investors wary of economic turmoil
Premiums on Grayscaleâ€™s crypto products are indicative of a wider trend in the institutional crypto industry, which has seen a number of high-profile investors, such as famed hedge fund manager Paul Tudor Jones and MicroStrategy CEO Michael Saylor tout Bitcoin and other cryptocurrencies as a â€œglobal hedge.â€
In their view, the decentralized nature of digital assets means they are not affected by any political and (in theory) economic action. But that said, the performance of cryptocurrencies remains to be gauged when global markets tumble â€” they fell over 40% in March after a market crash gripped global equity markets.
For now, however, the demand for cryptocurrencies is not stalling. Meanwhile, Grayscaleâ€™s managing director Michael Sonnenshein said that while his fundsâ€™ shares are high, he argued the asset manager â€œhas no control over that market.â€
â€œWeâ€™re creating the ability for these markets to happen,â€ Sonnenshein told Forbes. â€œBut itâ€™s not something weâ€™re directly making or facilitating.â€