Grayscale Sees 900% Inbound As Wall Street Flows To Bitcoin

Grayscale saw its assets under management skyrocket as Wall Street used it as a proxy to invest in bitcoin.

The New York-based investment firm started last year with $ 2 billion in assets and ended with more than $ 20.2 billion. The 900% increase was driven by demand from institutional investors such as hedge funds, endowments and pension funds, the company said in a quarterly report Thursday.

Grayscale’s Bitcoin Trust has become a popular, publicly traded way for investors to gain exposure to cryptocurrency without owning the coins themselves. Investment proceeds grew from $ 1.8 billion to $ 17.5 billion in assets year over year.

“We have seen a significant acceleration in institutional participation,” said Michael Sonnenshein, who recently took over as CEO of Grayscale Investments. “There is no longer any business risk in investing in the digital currency asset class – there is probably more business risk in not paying attention.”

Grayscale’s record year came as top fund managers publicly got used to digital currency.

Billionaire hedge fund manager Paul Tudor Jones called bitcoin “the best hedge against inflation” and compared it to putting money behind tech giants like Apple and Google. Other top Bitcoin bulls are Stanley Druckenmiller and Bill Miller. Their support, analysts said, has given Wall Street more confidence to invest.

Institutions accounted for 87% of Grayscale’s admissions for the full year, the company said. The average amount of commitments made by these investors has doubled in a few months. In the third quarter of 2020, investors were investing an average of around $ 3 million, and at the end of last year were committing an average of $ 6.8 million.

Institutional demand has been cited as one of the main reasons bitcoin surged above $ 40,000 last week and a triple-digit rally last year. Sonnenshein said these professional investors often lack the legal or “operational” means to buy and hold cryptocurrencies securely.

Many professional investors see it as an alternative to established safe-haven assets, such as gold, and protection against “perpetual printing of money” by central banks, Sonnenshein said.

“The most prevalent theme for bitcoin investment conviction stems from a spin out of gold,” he said. “Investors are also anecdotally sharing that it’s there, and how they’re making room for bitcoin in their wallets.”

Along with the influx of $ 3 billion into the Grayscale Bitcoin Trust since mid-October, gold ETFs have lost $ 7 billion, according to JPMorgan. An investment banking strategist also told clients in a note last week that a bitcoin ETF could weigh on prices in the short term and trigger Grayscale exits. In response to the analyst’s note, Sonnenshein, a former partner at JPMorgan, said an ETF would likely be approved but would not attract Grayscale’s interest.

“The type of entries we report should be proof that investors are not waiting for an ETF to start participating in this asset class,” Sonnenshein said.

Bitcoin prices have been volatile since falling below $ 40,000. After falling as low as $ 31,000 on Monday, the cryptocurrency was trading close to $ 39,000 on Thursday morning.

Professional investors can use declines as an opportunity to come back. When there are price drops, Sonnenshein said incoming phone calls and emails are often aimed at making more money work.

“Investors are used to seeing these types of cycles in price,” he said. “They are opportunistically using price cuts to double and increase their positions.”