Trader, analyst and investor Qiao Wang has revealed a weak point in the manner of operations demonstrated by Grayscale Investments with their popular Bitcoin (BTC) trust. He highlighted that it lacks the significant element of a security mechanism.
Where is the redemption?
Mr. Wang announced that Grayscale Bitcoin Trust (GBTC) investments lack the mechanism of redemption, i.e. the repayment by the issuer to the holder of securities before their maturity date. Typically, investors can redeem (return to cash) his/her investments partially or in full.
But that doesn't work with Grayscale Bitcoin Trust (GBTC), Mr. Wang concludes. As a result, the instrument of pegging the NAV (net assets value) to the quantity of GBTC stocks available for over-the-counter sale is broken.
So, Grayscale Investments can trade its products at a persistent discount to the NAV. Prominent traditional asset ETFs that the GBTC is commonly compared to, don't behave in this way.
Qiao Wang outlined that until this mechanism is built, GBTC investors are no more than sponsors of the Grayscale team, since:
Without the the ability to redeem, you are just donating your money
Grayscale has been among the most important newsmakers in the crypto segment in Q1-Q2, 2020. It was reported that in the fourth Bitcoin (BTC) epoch, since May 10, 2020, Grayscale has purchased more Bitcoins (BTC) than all miners around the globe have managed to collect.
Despite offering stocks of trusts based on Bitcoin Cash (BCH), XRP, ZCash (ZEC), Horizen (ZEN), Litecoin (LTC) and Ethereum Classic (ETC), Grayscale Ethereum Trust (OTCQX: ETHE) is its most popular product.
Its stocks are pumping strongly. As every stock is only 0.09 ETH , investors are buying them with a 730% premium.
This euphoria has been criticized by the blockchain analytical community. It was highlighted that attempts to leverage Ethereum (ETH) price movement via such an exotic vehicle has no benefits in terms of liquidity influx or taxation regime.