Grayscale Investments, the world’s largest digital asset management company, has seen exponential increases in investments in its cryptocurrency products. The total sum of assets under management rose by $ 1 billion in less than two weeks in July, as a Twitter update showed. Additionally, according to the latest documentation, the number of grayscale shares issued between Q1 and Q2 of 2020 has increased by 90%.
Considering in its second quarter update, the company revealed that it had raised around $ 900 million throughout the quarter, interest in Grayscale products appears to be growing at an exponential rate. At the time, the company collectively held over $ 5.2 billion in cryptocurrency, with Bitcoin leading to $ 4.4 billion. In total, the company received $ 1.4 billion in the first half of 2020.
Investment levels in Grayscale funds also exceed those at the end of 2017, although the price of Bitcoin is not as high. It is generally believed to be one of the best indicators of institutional interest in digital assets, given that no Bitcoin exchange-traded fund has been approved so far.
Demand not just for Bitcoin
While Bitcoin is by far the most popular of the grayscale investment product family, other assets have also grown significantly, with Ether (ETH) being the second biggest winner. Grayscale also recently filed a Form 10 registration statement with the United States Securities and Exchange Commission for the Grayscale Ethereum Trust, designating it as an SEC reporting company if validated.
This shows a growing institutional demand for Ether, which is also signaled by a growing volume of derivatives. This interest is probably fueled by the growing activity of the decentralized financial sector and stablecoins.
Grayscale investors have also shown interest in diversifying into multiple cryptocurrencies by investing in the company’s Grayscale Digital Large Cap fund. The fund is Grayscale’s fourth public offering, offers exposure to several crypto assets and is available for OTC equity trading. Rayhaneh Sharif-Askary, head of investor relations at Grayscale, told Cointelegraph:
“In the first half of 2020, Grayscale saw $ 1.4 billion of capital invested in the private placements of its product family. Demand for spare parts on the rise Demand for non-Grayscale Bitcoin Trust products is up 35% from Q-over-Q and 81% of institutional investors back in 2Q20 have now allocated to multiple products (an increase 71% compared to T12M). ”
The shares of Bitcoin Cash and Litecoin are Grayscale’s fifth and sixth public offerings and recently received approval from the U.S. Financial Industry Regulatory Authority to make both funds available for public OTC trading.
Premium and grayscale arbitrage
While Grayscale’s entries are certainly a sign of institutional interest, also supported by other datasets such as CME’s Bitcoin Open Interest Futures, some fear these entries may be exacerbated by accredited investors profiting from the premium between the underlying asset and the fund’s share price. Michael Sonnenshein, Managing Director of Grayscale recently confirmed that accredited investors can still buy GBTC at the price of Bitcoin:
“Those who ask… YES, the Grayscale #Bitcoin Trust Private Placement is available to accredited investors eligible to purchase shares at the daily net asset value of the Trust. We accept cash and $ BTC investments. “
According to Grayscale’s latest filing with the US Security and Exchange Commission, the number of shares sold increased 90% between the first quarter of the year and the second, equivalent to issuing over 87 million shares by the fund.
It’s also worth noting that grayscale stocks are trading at a fluctuating premium and in July it would have declined to 10%. According to crypto technology company Amun AG, investors (likely retail) have bought Grayscale Bitcoin Trust shares over the past year at a market price 22% above its average net asset value. Therefore, declines in the premium could have prompted arbitrage traders to step in and buy the shares, suggesting another reason why Grayscale’s products are in high demand.
Lanre Jonathan Ige, researcher at Amun AG, told Cointelegraph that premiums exist “due to the lack of the ability to create stocks on a daily basis (or buy back stocks) as in the case of ETP / ETF”. He added:
“There is an untapped demand for Bitcoin in the US market from those with tax-advantaged accounts like retirement accounts whose only option in BTC (some may not even properly understand the drastic premium for GBTC), de so that they maintain the demand for GBTC, which increases the premium. Savvy investors are able (to some extent) to generate returns equal to the GBTC premium knowing that the premium is unlikely to fall; or even hedge exposure to GBTC by also bypassing GBTC when they created new stocks. “
Resumption of institutional trading
Nonetheless, the exponential growth of institutional money flowing into Bitcoin and other digital assets can also be observed through other metrics, most notably through derivative activity on the CME and Bakkt futures markets – which recently posted record figures in both open interest and volume. .
Other options for institutional investors are also emerging everywhere. Lanre Jonathan Ige told Cointelegraph that the lack of viable options is one reason for the aforementioned bounties, but new options are starting to emerge:
“People don’t buy the native asset because many less sophisticated investors are unfamiliar with Coinbase / Kraken and want to invest through brokers they understand and in which they keep the rest of their wealth. GBTC is accessible through certain brokers who have access to the OTCQX market. Buying Bitcoin through such packaging would allow an investor to enjoy a number of tax benefits in the same way that investing in 21Shares’ ETP suite likely would.
As Bitcoin continues to establish itself in the public eye as a more reliable asset class, awareness seems to be paying off. Grayscale promotes education of institutions by promoting Bitcoin to financial advisors as well as many other strategies. Likewise, Fidelity has also dubbed Bitcoin as an insurance scheme against the economic crisis, and Goldman Sachs recently said that the price of Bitcoin may rise alongside that of gold as demand for viable value stores increases. .
Grayscale not only promotes crypto education to financial advisers, but also tries to educate the masses about crypto, having recently launched an advertising campaign on CNBC, MSNBC, FOX and FOX Business to “bring crypto to the masses. masses”. The 30-second video ad, however, received heavy criticism from some members of the Bitcoin community for not mentioning Bitcoin and focusing too much on the history of money rather than digital assets. In addition, some have also criticized the mention of controversial forks like Ethereum Classic and Bitcoin Cash and even the quality of the ad itself.
Amid the ongoing pandemic and the depreciating dollar, it is only a matter of time before we see a Bitcoin ETF that could be a real game-changer for Bitcoin, according to Grayscale CEO Michael Sonnenshein. So far, the closest thing to an ETF is the GBTC fund which, if it were an ETF, would be one of the most sought after in the United States.