It’s shocking how much money some people will pay to get exposure to cryptos.
In some cases, I’ve seen investors pay a premium of 100% … 200% … 300% or more for no good reason.
At one point, this premium reached over 2,000%!
That’s highway robbery.
This simple mistake could easily cost you thousands of dollars in crypto profits.
Today, I’m here to warn you about one crypto investment you need to stay far away from.
These Crypto Investments Are Littered With Problems
If you’re just getting into crypto, it can be overwhelming when deciding what to buy and where to buy it.
Unless you’re trading the actual cryptos on an exchange, you’re making a mistake.
Stay far away from crypto investment trusts. Here’s why…
Crypto investment trusts are littered with problems. As you’ll quickly learn, I don’t like them.
With trusts, crypto investment companies like Grayscale purchase the underlying crypto and hold it in a trust account.
You and I can then go out and buy shares of this trust in the over-the-counter market.
This may sound appealing. But in reality, it’s problematic.
Traders Don’t Understand How Crypto Trusts Work
Trusts like the Grayscale Bitcoin Trust (OTC: GBTC) or the Grayscale Ethereum Trust (OTC: ETHE) don’t let holders redeem their shares for the underlying crypto.
Because of that, shares can trade at a premium or discount to their net asset value (NAV).
In the past, investors that bought into these trusts paid enormous premiums of 2,000% or more.
Premiums of this magnitude occurred because uninformed traders rushed to buy shares without understanding how the trust worked.
Unfortunately, many traders that paid these premiums actually saw their positions decrease in value as the price of the underlying crypto rose.
To see an example of this, look at the chart below.
It shows the price of ETHE in the top panel and the premium/discount to NAV in the bottom panel.
You can see that in June 2020, as optimism around Ethereum heated up, the trust’s premium increased to nearly 900%.
ETHE Traded at a 900% Premium in 2020
(Source: Bloomberg.)
Traders buying ETHE at that time would be sitting on a 66% loss today.
Meanwhile, traders that bought Ethereum instead would be sitting at a 400% gain.
Don’t Bet on GBTC or ETHE
You’ve seen what can happen when you buy these trusts at a premium.
But now we’re seeing the polar opposite scenario in GBTC and ETHE as we speak.
Instead of trading at huge premiums, they now trade at sizable discounts to their NAVs.
The market price of both GBTC and ETHE is 34% below NAV.
On the surface, this sounds appealing. But as I mentioned earlier, shareholders can’t redeem trust shares.
So there’s no guarantee that holders will see the share price converge to NAV.
Now, this problem wouldn’t exist if these trusts were structured as exchange-traded funds (ETFs).
Holders would be able to redeem shares, which would attract traders that could take advantage of the discounts.
But if you’re buying GBTC or ETHE now, you’re basically betting on two things:
- The price of the underlying crypto will go up.
- The trust will become an ETF in the future.
For the first bet, you’re better off buying the actual crypto.
You get pure price exposure. And you can take advantage of any benefit that may come with holding the crypto, like staking or governance.
As for the second bet, I wouldn’t take it.
Grayscale has been trying to convert its trusts to ETFs for years.
The Securities and Exchange Commission (SEC) has continued to take a hard pass on the matter despite Grayscale’s efforts.
So there’s no reason to believe that these trusts will become ETFs anytime soon.
I’d argue that the market knows this, since the discounts on shares have become so wide.
The 7 Most Important Cryptos to Buy Right Now
I’ve made my case today for why you should buy cryptos on an exchange.
But the big question is: Which cryptos should you invest in?
Well, you’re in luck.
This Tuesday, Ian King is releasing his latest crypto report.
It outlines the seven most important cryptos to buy right now.
Ian believes each one of these cryptos could deliver 100X gains — giving you a shot at a million-dollar windfall.
He’ll reveal the details in a special event on Tuesday at 1 p.m. Eastern time.
If you haven’t signed up already, you can click here to reserve your spot.
Regards,
Research Analyst, Strategic Fortunes
Morning Movers
From open till noon Eastern time.
Epizyme Inc. (Nasdaq: EPZM), a biotechnology company, gained 55% after French pharmaceutical company Ipsen agreed to acquire the company for $247 million. The acquisition price comes at a 52% premium to Friday’s close.
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Naspers Ltd. (OTC: NPSNY), an internet and direct marketing company, gained 20% after announcing an open-ended share buyback.
Hemisphere Media Group Inc. (Nasdaq: HMTV), a media company, gained 16% after disclosing several acquisition offers above the $7 deal it agreed to with Searchlight in early May.
Oportun Financial Corp. (Nasdaq: OPRT), a consumer finance company, bounced 15% after making a new 52-week-low on Friday. The move comes on no news.
Prosus NV (OTC: PROSY), an internet and direct marketing company, gained 14% after it announced it would be cutting its stake in Tencent to finance a buyback program.
Xiaomi Corp. (OTC: XIACY), a Chinese technology hardware company, gained 12% after investment bank Jeffries noted a recovery in China smartphone sales.
Virgin Orbit Holdings Inc. (Nasdaq: VORB), a space satellite launch company, gained 12% after receiving an operator license to commence space launches from Brazil.
Borr Drilling Ltd. (NYSE: BORR), an energy equipment and services company, gained 11% after it signed a letter of intent to sell three jack-up rigs for $320 million.
Vroom Inc. (Nasdaq: VRM), an e-commerce used-car retailer, gained 9% on no news. The stock could be in the midst of a short squeeze, with 31% of its share float sold short.
