You might hear that GBTC (or ETCG) has a “premium.” This is a reference to the difference between the value of the holdings of the trust vs. the market price of the holdings.

The current value of the holdings, that is the underlying value, is also called Native Asset Value (NAV).

The current market price of the holdings is what the trust costs on the stock market.

When the market price is higher than the NAV, the difference is called a “premium.” Thus, NAV + premium = market price.

No one dictates this premium, supply and demand on the stock market creates this!

You can check the premium at any time on Greyscale.co.

As a rule of thumb, if you don’t understand the premium, you shouldn’t be buying shares of GBTC or ETCG (or when they launch, other trusts).

However, if you understand the premium, and you understand the crypto markets, you may find these trusts to be not only useful and potentially profitable to trade.

Here are two rules to consider:

  1. The premium makes GBTC or ETCG bought at a high premium a risky bet (even riskier than BTC or ETC themselves). This is because if crypto goes down hard, which it often does, the premium can shrink and magnify your losses!
  2. The premium makes GBTC or ETCG bought at a low premium a potentially profitable bet (even better than BTC or ETC themselves). This is because if crypto goes up hard, which it sometimes does, the premium can expand and magnify your gains!

Further, one can think of the premiums as indicators of crypto sentiment and even the direction of the market, where the basic rule is this:

  1. The Native Asset Value (NAV) to Premium Divergence (premium is increasing) = Bullish / Becoming Overbought. If you know what RSI is, you can think of this as being similar to RSI. A high RSI is a sign of bullishness, but also a hint that a correction to the downside is coming.
  2. Nav to Premium Convergence (premium is decreasing) = Bearish / Becoming Oversold. Again, like RSI, a low RSI is a sign of bearishness, but also a hint that a correction to the upside is coming.

See the pictures below for a better idea of what I mean.

GBTC Premium explained. This is what the premium is and how to use it as an indicator.

The GBTC premium works as an indicator of crypto sentiment at least, if not price direction.

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