Summary Grayscale Bitcoin Cash Trust continues to trade at a significant premium to its net asset value (NAV). Private placement is now open again for accredited investors. Meaning, shares purchased privately at NAV can be sold at a premium after a 6-month lockup. In my view, there are simply better ways to get investment exposure to BCH than BCHG. Three months ago, I published an article for Seeking Alpha covering the Grayscale Bitcoin Cash Trust ( BCHG ). It is a single-asset fund from Grayscale that exists solely to custody the cryptocurrency Bitcoin Cash ( BCH-USD ). The main point of that article was very straightforward; the fund traded, and continues to trade today, at a significant premium to net asset value, or NAV. In previously calling the fund a "hold" rather than a "sell," it was interesting seeing the reaction to that article in the comments. I gave what I felt were three possible reasons for what could be driving such a large premium at the time: Unsophisticated buyers not doing the math on the premium Expectations for higher underlying asset prices to catch the premium Purchases in tax-advantaged accounts minimizing the sting of the premium at profit-taking time Frankly, I was not expecting this to be a controversial take and the response to the notion that unsophisticated investors might be buying BCHG without realizing the premium was so large was a bit surprising. All one has to do is go to a platform like Stocktwits to see examples of holders not fully understanding why a fund's price can decline when the underlying asset in the fund is going up. But admittedly, I did leave out another reason to long BCHG at a premium; namely, the premium may just keep going up. And that is what has played out in the three months since my last article. Premiums & Private Placements With the caveat that BCHG isn't even close to the most overvalued Grayscale fund premium at this point in time, BCHG is now Grayscale's third-largest closed end single asset fund by AUM and the only fund in the top 3 that trades at a premium: Asset Fund Grayscale Trust Ticker AUM Share Value Share Price Discount/Premium Ethereum ( ETH-USD ) ( ETHE ) $10.68B $34.16 $31.18 -8.7% Ethereum Classic ( ETC-USD ) ( ETCG ) $412.34M $28.63 $16.93 -40.9% Bitcoin Cash ((BCHG)) $139.45M $3.91 $6.21 58.8% Litecoin ( LTC-USD ) ( LTCN ) $134.98M $7.63 $17.74 132.5% Solana ( SOL-USD ) ( GSOL ) $43.39M $48.98 $439.30 796.9% Source: CoinGlass, as of 3/4/25 market close When Seeking Alpha published my last BCHG article on December 5th, the fund shares closed at $3.20 and the premium on those shares was about 47%. As is sometimes the case, the market knows better than I do and the market price for BCHG shares have rallied more than 94% in the last three months: 12/5/2023 3/4/2024 Change Shares Outstanding 34,812,900 35,322,100 1.5% NAV Per Share $2.18 $3.91 79.4% Market Price Per Share $3.20 $6.21 94.1% Premium 46.8% 58.8% 18.5% Asset Per Share 0.008657293 0.00860419 -0.6% Source: Grayscale This means BCHG shares have indeed outperformed the net asset value of the shares over that same period of time. Strangely enough, BCH has actually increased by 89% over the same time frame - less than the market price of BCHG shares but more than the net asset value of BCHG shares. How could that be? BCHG Total Holdings (CoinGlass) In late February, the total holdings of the fund started going back up. And we can also see from the table above this chart that shares outstanding have increased as well since my last article. Grayscale is taking private placements again. Through private placement, accredited investors can essentially buy BCHG at NAV and wait for a six month lockup period to end. At the conclusion of that lockup period, the shares can be sold on the secondary market. This is significant and will start to have an impact in August of this year when those new shares unlock. It's essentially the Grayscale arbitrage trade from the last 18 months but in reverse. People who bought ETHE at a 50% discount have done very well as the discount has normalized over the last year. The same will be true here if private placements continue. When the accredited investors lockup up shares at the NAV and wait six months, they are banking on the secondary market premium holding up until their lockup window opens. They will then have the ability to sell at the premium rate and keep the spread. Bitcoin Cash Could Continue To Rise I'm calling BCHG a hold and not a sell because I've been coming around on the idea of Bitcoin Cash. For better or worse, Bitcoin Cash has not been viewed through a friendly lens by the Bitcoin ( BTC-USD ) community, even though the two camps have historically shared very similar ideals. This hasn't stopped BCH from rallying over 200% in the last year: Data by YCharts Bitcoin Cash had an enormous rally last summer after BlackRock filed for a Bitcoin spot ETF - that was not a typo. BCH rallied when BlackRock wanted a spot BTC ETF. I am personally of the view that there is probably a signal there. As a payments network, Bitcoin Cash is much faster than Bitcoin and is cheaper to transact. That said, network usage leaves quite a bit to be desired. 30 Day Average Active Address Ratio (Coin Metrics) Despite some of these advantages in cost and scaling, BCH has a lower active address ratio than BTC. And that's saying something since BCH is generally viewed for its potential utility while BTC is viewed as the one to "HODL." Closing Thoughts It is totally justifiable to buy BCHG because you expect BCH to rally long term. You just have to be careful about not paying a premium that is too high and be mindful of the 2.5% management view. I stand by what I said in my last article. If your goal is to get long-term investment exposure to BCH, you may want to consider opening a crypto IRA rather than buying Grayscale funds at a 2.5% annual fee. In my view, that fee is way too high for a fund that isn't actively managed. The BCH underlying the BCHG shares sits with Coinbase ( COIN ). It's an expensive way to buy BCH even if the NAV premium didn't exist. But in this case, there is a large NAV premium. And it's a big enough premium that Grayscale has reopened private placements for bigger fish to try to capture the spread after lockup. I wouldn't want to be their exit liquidity.
