Grayscale Litecoin Trust Goes Odd Again (LTCN)

I’ve written quite a few articles (I, II, III) about how the Grayscale Litecoin Trust (OTCQX:LTCN) was one of the craziest things happening in the market, even in a market where madness was not hard to find.

The madness, at the time, manifested itself in massive bounties on what the trust actually held: Litecoin (LTC-USD).

Of course, since then the madness has died down as more and more shares unlocked. However, recently, LTCN has become strange again, but not quite like before. This time, LTCN does the opposite.

Remember that it is quite simple to find out how much each LTCN stock is worth. You just need to take the amount of Litecoin held by the trust per share (0.09073168) and multiply it by the current price of Litecoin ($141.87).

At present, this would imply an intrinsic value, for LTCN, of $12.87. But of course, as of this writing, LTCN is trading for $7.07 instead.

Each LTCN is therefore currently trading at a 45% discount to its intrinsic value. A huge turnaround from when this trust traded for hundreds of percent of the premium. A 45% discount more or less means you can buy Litecoin today for the equivalent of $77.90. If you like Litecoin at $141.87, you will definitely like it at $77.90.

So, is LTCN a buy?

Here, things are more complicated. LTCN is definitely a buy if you fancy buying Litecoin. Or crypto in general (because most crypto tends to move in bulk). If this is your intention, then surely LTCN is a much better way to buy Litecoin than buying Litecoin directly.

However, if at the same time you think crypto is one of the biggest bubbles in history, then even a 45% discount might not save you the math. The entire crypto trades for approximately $2.05 trillion in market capitalization. If it’s a gigantic bubble, it can easily have an 80-90% drop from here. In this case, a 45% discount would not save you money.

Finally, there is another consideration to be made. With a whopping 45% discount, Grayscale could theoretically make money out of thin air and also reduce the discount for its customers. All he would need to do is buy LTCN on the market, redeem the shares for Litecoin, and sell Litecoin.

Or Grayscale could just be nice to its customers and open up to everyone. In this case, the market itself would quickly eliminate most of the discount, following the process I described for Grayscale.

However, there could be two obstacles to the above:

• First, self-interest. If Grayscale opens LTCN redemptions, its assets under management would decrease as units are redeemed (this could, however, be offset by higher unit values).
• Second, regulatory barriers. It is entirely possible that Grayscale may not be able to open LTCN buybacks due to a regulatory impediment to doing so.

Conclusion

There are three main conclusions to be drawn here:

• First, this time LTCN is trading at a huge discount. This is interesting in itself and can lead to many different speculative hypotheses.
• Secondly, for someone who wants to buy crypto or Litecoin in particular, it is better to buy LTCN than to buy Litecoin directly from the market.
• Third, speculators might want to buy LTCN in hopes that Grayscale will do something to reduce the huge discount.

And me? Well, I fall into the “crypto is a huge bubble” camp. Therefore, even a 45% discount on a huge bubble is not enough to make me personally positive about LTCN. I see the potential downside as exceeding 45% by a wide margin. Additionally, Litecoin may fall and Grayscale may do nothing to reduce the rebate, so the rebate would then be little consolation.

Still, I recognize that for those interested in crypto, a 45% discount must be too much to accept.