Consider the Grayscale Bitcoin Trust (OTCQX: GBTC), which had a share price of $9.31 with $8.75 worth of Bitcoins per share on 2020-07-16:
For a more extreme example, consider the Grayscale Ethereum Trust (OTCQX: ETHE), which had a share price of $74.90 with $21.93 worth of Ethereum per share on 2020-07-16:
What explains the huge premiums to net asset value (NAV) of these cryptocurrency trusts? Like ETFs, these Grayscale trusts appear to have a creation mechanism, but unlike ETFs, these trusts have no redemption mechanism. The fine print on the website says:
For the Bitcoin Trust:
* Grayscale Bitcoin Trust does not currently operate a redemption program and may halt creations from time to time. There can be no assurance that the value of the shares will approximate the value of the Bitcoin held by the Trust and the shares may trade at a substantial premium over or discount to the value of the Trust's Bitcoin. The Trust may, but will not be required to, seek regulatory approval to operate a redemption program.
For the Ethereum Trust:
* Grayscale Ethereum Trust does not currently operate a redemption program and may halt creations from time to time. The Trust may, but will not be required to, seek regulatory approval to operate a redemption program.
Given that the creation mechanism exists, but not the redemption mechanism, I would expect these trusts to occasionally trade at a discount to NAV. However, in reality, these trusts appear to constantly trade at large premiums to NAV. What could explain the huge premiums to NAV of these cryptocurrency trusts?