Summary Bitcoin Cash has outperformed the Grayscale Bitcoin Cash Trust (BCHG), the latter of which still trades at a significant premium to its NAV. BCHG's NAV premium compression is ongoing, influenced by less robust private placements compared to other Grayscale funds like GSOL, which had a more extreme premium bleed. Bitcoin Cash's network metrics, such as non-zero balance addresses and active address ratio, indicate a lack of significant usage, failing to meet its P2P cash system goal. Both Bitcoin Cash and BCHG are hold; BCHG's premium may adjust if BCH appreciates, but better returns are likely found elsewhere in the market. In late-September, I offered readers my latest take on the Grayscale Bitcoin Cash Trust ( BCHG ) through Seeking Alpha. While I've generally kept a small speculative position in Bitcoin Cash ( BCH-USD ) off and on through the years, I've never once rated BCHG a 'buy' having now covered the fund three times in the last 12 months. Since my last article covering the fund, BCH has indeed outperformed BCHG: BCHG vs BCH since 9/25/24 (Seeking Alpha) Bitcoin Cash is up over 35% since late-September, while BCHG has lagged the underlying asset by a significant degree. In this update, we'll get into the recent compression in the NAV rate of BCHG, the share dynamics of the fund, and on-chain metrics for BCH to determine if either of these assets are a buy at this point in time. Grayscale Bitcoin Cash Trust I won't bury the lede, BCHG still trades at a considerable premium to the net asset value, or NAV, of the underlying BCH that is represented by each fund share. However, while the 62.7% premium to NAV is still too high in my personal view, it's a large improvement from the 112% premium that was observable the day my last article was published: BCHG Premium (CoinGlass) The chart above shows the trend in the NAV rate going back to September 2023. At that time, the fund shares actually traded at a sizable discount to NAV. But in 2024, we had the return of the premium, and to a significant degree. On April 2nd, BCHG shares traded at a 300% premium to NAV, which was the largest premium since April 2021. One could definitely argue that I've been early on my arguments against NAV rate premiums in excess of 100%, but I don't think I've been wrong. It is my belief that this NAV rate compression is far from over, and I take that view because of what we're observing in some of the other Grayscale funds. Grayscale NAV Rates (CoinGlass) BCHG now has a smaller premium to NAV than the Grayscale Solana Trust ( GSOL ). I've covered GSOL's premium for Seeking Alpha several times and have been very bearish on the premium and on private placement lockup expiration. We've seen the implications from those lockups start to manifest for GSOL. However, the premium bleed has been much less extreme in BCHG than it has been for GSOL to this point. The latter of which eclipsed 800% earlier this year. Grayscale Trust 12/28/22 12/18/24 Change Bitcoin Cash 34,812,900 45,966,400 32.0% Litecoin ( LTCN ) 17,204,700 23,985,800 39.4% Filecoin ( FILG ) 111,400 1,920,900 1624.3% Chainlink ( GLNK ) 321,010 1,197,610 273.1% Solana 1,522,140 7,088,535 365.7% Source: Grayscale, GSOL shares from 12/28/22 are 5 for 1 split-adjusted I suspect one of the major reasons why BCHG has had a far more orderly NAV premium re-rating than GSOL is due in due to the fact that the private placements through Grayscale weren't nearly as robust for Bitcoin Cash as they were for Solana. Where a fund like GSOL has had 365% growth in shares outstanding through private placements since the end of 2022, BCHG has had just 32% growth. The table above indicates that the strongest growth in shares over the last two years has absolutely been linked to the NAV premium extremity, as GLNK and FILG have also traded at sky-high premiums. Bitcoin Cash Bitcoin Cash notoriously spawned from the Bitcoin ( BTC-USD ) hard-fork that resulted from the block size war preceding the 2017 bull market. The major selling point of Bitcoin Cash as a network is that proponents claim it is closer to Satoshi Nakamoto's original vision for Bitcoin to be a peer-to-peer digital cash system rather than a digital store of value akin to something like Gold. I happen to personally agree with much of the sentiment from the BCH community regarding Bitcoin's shortcomings. However, that doesn't necessarily mean BCH is a buy. As I see it, the data would actually suggest BCH has failed to be a P2P cash system as well. BCH Total Non-Zero Addresses (IntoTheBlock) The first metric that I feel shows a general lack of interest for Bitcoin Cash is non-zero balance addresses on the network. That figure currently stands at 24.8 million. Not only is this only about a 40% increase from the 17.7 million starting point from 2017 following the fork, but it's actually a decline of 2% year over year. The lack of total addresses with balance wouldn't be totally concerning by itself if those addresses were using BCH to a significant degree. But that is not really the case, judging by active address ratio: BCH Active Address Ratio (IntoTheBlock) This takes the active address on the chain and divides it by the total addresses. The active address ratio on Bitcoin Cash has generally fallen somewhere between 0.2% and 0.4% with outliers in both directions. This is substantially worse than the active address ratio for Bitcoin, which is typically above 1% each day and was above 2% during most of 2023. However, it's important to keep in mind that Bitcoin Core supporters who opposed the fork could still have BCH from the fork with no intention of ever moving it. If we take the all-time low in Bitcoin Cash non-zero addresses (14.9 million) and assume the spread between the low and the current figure (24.8 million) is more indicative of the actual Bitcoin Cash community (lets call it 10 million), we can make an adjusted active address ratio for the sake of a more fair comparison. BCH Active Address Ratio (CoinMetrics) The 30-day active address number for Bitcoin Cash is currently about 50k. If we divide that by the 10 million adjusted Bitcoin Cash zero wallet address figure described above, we still get an active address ratio of just 0.5%. This is below Bitcoin and well below the 4.5% active address ratio observed by PoW blockchain peer Litecoin ( LTC-USD ). Closing Summary From where I sit, Bitcoin Cash and the Grayscale Bitcoin Cash Trust are both just holds. I won't call BCHG an outright sell because it's always possible BCH appreciates the premium away if BCHG shares don't rise with the price of the underlying. You can certainly talk me into direct BCH holdings as a small speculation, or to simply toy around with a fast blockchain. But I'm not going to call BCH a 'buy' based on any fundamental setup that I'm observing in the network data. To be clear, this is not to say the chain isn't interesting technologically. I think things like CashFusion are important, and I believe there are interesting developments happening on the blockchain. But beyond that, I believe traders/speculators/investors will likely see better returns elsewhere if/when the market gets a proper 'alt-season.'
