Summary I previously rated Grayscale Litecoin Trust a 'hold' and suggested directly buying Litecoin due to LTCN's high premium over LTC. LTC has significantly outperformed LTCN, doubling in value while LTCN remained stagnant, highlighting the fund's premium collapse. With potential approval of a spot LTC ETF under a Trump SEC, there's no reason to pay a premium for LTC exposure through LTCN. Investors must understand the changing landscape for Grayscale funds, as new LTC investment options could impact capital flows and premiums to net asset values. Back in August I covered the Grayscale Litecoin Trust ( OTCQX:LTCN ) for Seeking Alpha. At that time, I called shares in the fund a 'hold' and even suggested longing Litecoin ( LTC-USD ) directly rather than LTCN if speculators were bullish LTC: On one hand, I think LTC is too cheap relative to peers. On the other hand, I think LTCN is too expensive relative to LTC. Despite what, I believe, are flaws in the product itself, LTCN is a fund that I've held long in the past and one that I certainly wouldn't rule out longing again in the future. That said, I don't want to pay double what the LTC is currently worth. I still think the better approach is owning LTC directly over holding LTCN shares. At the time that piece was published, LTCN shares traded at a roughly 100% premium to the net asset value of the underlying assets represented by each fund share. To no real surprise, Litecoin has drastically outperformed LTCN over the last 6 months. Since that early-August article, LTC has more than doubled while LTCN has effectively gone nowhere: LTC vs LTCN (Seeking Alpha) How could this be? In this update, we'll get into what is driving the collapse in the fund's premium, some of the on-chain data for Litecoin, and why I'm actually now willing to upgrade LTCN to a 'buy' from a 'hold.' Why The NAV Premium Is Essentially Gone One day after the general election in the United States, I offered one of the ways I was playing the ' Trump Trade ' for SA readers. Given the outgoing administration's regulatory approach to digital assets, my view for some time has been that a second Trump administration would be far friendlier to the cryptocurrency industry. Resulting in a better fundamental setup for 'altcoins' - essentially, anything other than Bitcoin ( BTC-USD ). If there was any doubt about those assertions in November, certainly actions taken in the days leading up to the inauguration when President Trump launched his own memecoin might alleviate any concerns about continued regulatory pressure on the alts. To be sure, we're already seeing asset managers apply for spot ETFs offering exposure to no less than four additional digital assets. Dogecoin ( DOGE-USD ), Solana ( SOL-USD ), XRP ( XRP-USD ), and Litecoin are on the list for the Securities and Exchange Commission to consider. Of which, a Litecoin ETF from Canary appears to be the furthest along judging by a request for public comment. LTCN NAV Rate (CoinGlass) At market close on January 30th, LTCN traded at a premium to NAV of just 4.7%. As of article submission on January 31st, LTCN is down 7% intraday, while LTC is down just 2%. For all intents and purposes, the premium is officially gone. Thus, if you like the investment prospects for LTC, LTCN is no longer a terrible way to express that idea. Of course, we could see LTCN trade down to a discount once again, as it did for most of 2022 and 2023. However, any concerns about such a scenario should be alleviated by the fact that Grayscale has already filed to convert LTCN to a spot fund. Is Litecoin Investment Justifiable? In my view, the short answer is 'yes' if you envision a future with competing digital currencies rather than one where Bitcoin reigns as the only cross-border settlement asset. Litecoin is competitive with Bitcoin in terms of usage metrics like daily active addresses. Over the last 30 days, Litecoin's daily active address figure is roughly 360k - this is just half that of Bitcoin but many multiples higher than competing payment-themed proof-of-work coins like DOGE and Bitcoin Cash ( BCH-USD ). Active Address Ratios (CoinMetrics) Where I think LTC makes its utility case quite clear is in the active address ratio. Though it is well off highs from early 2024, Litecoin's 30-day average active address ratio is 4.4%. Meaning, 4.4% of the non-zero wallet addresses that hold LTC are actively using the currency. This is more than 3x the active user base of Bitcoin. 30 Day NVT Ratio (CoinMetrics) From a valuation standpoint, LTC has been left in the dust in terms of network valuation multiple over the transacted value that the network is actually settling. At a 30 day average NVT ratio of just 64, Litecoin is the cheapest PoW payments network by a wide margin. The next closest NVT ratio is DOGE at 145. Bitcoin trades at a 30 day NVT ratio of 188. Meaning, LTC is comparatively cheaper than BTC. Closing Takeaways In my view, it is absolutely critical that investors in Grayscale funds understand the game that they're playing and how the setup in that game is drastically different from what it was three to five years ago. For LTCN specifically, there are implications from not just share lockup expiration , but the simultaneous spot LTC ETF applications from competing financial asset managers. Five years ago if a speculator wanted to get exposure to Litecoin through a traditional brokerage account, LTCN was the only option. Those days are likely coming to a close. With an approval of a spot LTC ETF, and I don't think it takes much imagination to see such a product hitting the market under a Trump SEC, there is absolutely zero reason to pay a premium for LTC exposure through LTCN. And the market appears to have already sniffed this out. Grayscale Fee Flight (Farside) One must also consider the implications of capital flows should new LTC investment options be available for TradFi brokerage accounts. We've seen the Grayscale 'fee flight' problem have an impact on the early net asset flow for the Ethereum ( ETH-USD ) ETFs. Bitcoin's net flow story was positive in spite of exit pressure from Grayscale Bitcoin Trust ETF ( GBTC ) holders. It took four months following launch for the spot Ethereum funds to flip to positive net flow. However, the election results were absolutely the primary catalyst driving that sentiment shift for ETH. The same is likely to be true for LTC. I happen to bullish on LTC. For the first time since I started covering the fund, I'm also bullish LTCN.
