Grayscale Investment Report for the Fourth Quarter: Asset Management Scale Increases 10 Times in 2020

Grayscale released its investment report for the fourth quarter of 2020, stating that of the US$3.3 billion invested in the quarter, 93% came from institutional investors.

Original title: “Grayscale Digital Asset Investment Report for the Fourth Quarter of 2020-Annual Asset Management Scale Increases 10 Times”
Written by: Grayscale
Translation: Grey Wolf

Bitcoin’s value has been tested by the global pandemic, devastating stock market crash, and growing geopolitical tensions. However, in the unprecedented U.S. monetary policy, Bitcoin has shown resilience and will become one of the best performing assets of the year at the end of 2020.

Bitcoin’s performance during periods of high volatility has attracted the attention of more financial institutions, investors and industry observers than ever before. Influential figures in the financial and technological fields stated that the public supports Bitcoin as an investment, product and currency commodity. When writing history books, 2020 will be seen as a major turning point in the adoption of Bitcoin and the wider digital currency.

Grayscale outlook for 2021

• Bitcoin arms race-Bitcoin is becoming a widely used decentralizer in investment portfolios. Major investors, consulting companies, and even banks are changing their views on Bitcoin. The professional risk allocated to Bitcoin has become a backward professional risk. In 2020, we see institutions add Bitcoin to their balance sheets—in 2021, we may see nation states follow suit.

• Interest of financial advisors-RIA’s interest has surged in the fourth quarter of 2020, and more and more financial advisors are receiving questions about digital currencies. Given the performance of major digital currencies like Bitcoin in 2020, it is reasonable to expect that more investors and advisors will consider how to best use this asset class in a larger investment portfolio. Wealth management companies provide consulting services for approximately $80 trillion in assets, most of which have not yet recommended digital assets. ₁

• Bitcoin rewards may become an important source of demand for Bitcoin-the annual spending on credit cards in the United States is US$4 trillion, and the annual spending on debit cards is more than US$3 trillion. ₂ Fold, CashApp, and BlockFi are among the companies that launched bitcoin reward cards in 2020. We expect major credit card companies to follow suit as they see the success of these Bitcoin products.

• Bitcoin is seen as a clean energy incentive-energy consumption and the geographic concentration of China’s mining industry have always been hot topics for Bitcoin. This narrative is changing rapidly. By integrating Bitcoin mining into the most efficient energy infrastructure in the entire African continent, North America is becoming a powerful organization for mining like a foundry. Energy companies are making purely economic decisions to make rational use of previously wasted energy and get paid. Bitcoin mining is helping to subsidize underutilized energy infrastructure and may be integrated into public green energy plans.

• Decentralized finance is on the rise-billions of dollars in liquid loans, borrowing, and transactions have made Decentralized Finance (DeFi) the most powerful non-bitcoin use case in the digital currency ecosystem. With the increasing pursuit of yield in traditional markets, we expect large financial companies to consider integration with decentralized agreements.

• Nation-states adopt digital currencies—Although many countries/regions have enacted laws on digital currencies, few people seriously introduce or incorporate them into government-disposable financial instruments. The latest guidance from OCC indicates that Bank of America may consider incorporating digital currency into its settlement infrastructure. In 2021, we may see digital currencies begin to be integrated into the national bank infrastructure.

Digital Asset Investment Report

Highlights of the fourth quarter of 2020 ₅

• The total investment of the gray scale product _6: $ 3.3 billion
• Average weekly investment-all products: $250.7 million
• Average weekly investment-Grayscale Bitcoin Trust Fund: $217.1 million
• Average weekly investment-Grayscale Ethereum Trust Fund: 26.3 million USD
• Average weekly investment-Grayscale Digital Large-Cap Equity Fund: $1.6 million
• Average weekly investment- ₇ gray products outside the Bitcoin Trust: $33.6 million
• Most investment (93%) comes from institutional investors, mainly led by asset managers.

Highlights as of 2020 ₈

• Total investment in Grayscale products: US$5.7 billion
• Average weekly investment-all products: US$109.8 million
• Average weekly investment-Grayscale Bitcoin Trust Fund: US$90 million
• Average weekly investment-Grayscale Ethereum Trust Fund: 15.2 million USD
• Average weekly investment-Grayscale Digital Large-Cap Equity Fund: $1.4 million
• Average weekly investment- ₉ gray products other than Bitcoin Trust: $19.8 million
• Most investment (86%) comes from institutional investors, mainly led by asset managers.

Focus

For a wider range of grayscale and digital assets, 2020 is a landmark year. Thanks to the community and our investors for making this possible. We are honored to share data that reflects the widespread adoption throughout 2020 (especially the fourth quarter of 2020).

US$3 billion quarter: Grayscale has experienced unprecedented investor demand, with approximately US$3.3 billion in capital inflows. In 2020, the investment in Grayscale products exceeded 5.7 billion U.S. dollars, more than four times the cumulative inflow of 1.2 billion U.S. dollars to the product from 2013 to 2019.

Since its establishment, the Grayscale series products have flowed into nearly 6.9 billion US dollars. ₁₀

The scale of assets under management of 20 billion US dollars: The assets under management of Grayscale at the beginning of the year were 2 billion US dollars, and by the end of 2020, it was 20.2 billion US dollars. In 2020, Grayscale Bitcoin Trust Fund has become one of the fastest-growing investment products in the world, with its asset management scale growing from US$1.8 billion to US$17.5 billion. ₁₁ This is an incredible proof of the maturity of the digital currency ecosystem.

The inflow of the Grayscale Bitcoin Trust Fund exceeds that of newly mined Bitcoins: As we pointed out in the previous report, the proportion of funds flowing into the Grayscale Bitcoin Trust Fund in mining Bitcoin continues to grow. This indicator is very important because it is well known that miners are natural sellers in the market and usually use their newly mined bitcoins to pay for operating expenses. In the 4th quarter of 20 years, the inflow of bitcoin was approximately 194% of that of mined bitcoin.

However, these comparisons are only to illustrate the relationship between supply and demand in the market. It cannot provide an in-depth understanding of the destination of any newly mined bitcoins during the estimated period.

Institutions are here: Historically, institutions accounted for most of the inflow of gray. This is especially noticeable in the fourth quarter of 2020, as institutions accounted for 93% of capital inflows, or $3 billion. Given the recent series of news that institutions are rushing to Bitcoin, this may not be a surprise. Indeed, Grayscale Bitcoin Trust Funds accounted for 87% of the total inflows in our product line, the highest proportion since the second quarter of 2017, which further proves that institutions consider Bitcoin as a reserve asset.

The average commission between institutions has also grown at a significant rate. The agency’s average commission was US$6.8 million, higher than the average US$2.9 million in the third quarter of 20.

The demand for RIA has surged: In the fourth quarter of 20 years, Grayscale has received a lot of attention from wealth management institutions who are interested in learning more about Bitcoin to meet the growing customer demand. This is part of an emerging trend in the past six months, which is essential for continued adoption.

Quarterly perspective

In the fourth quarter of 2020, even taking into account the fees, expenses and other costs related to the fund, most of Gray’s product lines were significantly better than the main indexes.

Figure 1: multiple asset classes results for the fourth quarter and 2020 ₁₂ (2020.10.1-2020.12.31)

With rising prices and the inflow of funds from institutions, Grayscale’s assets under management hit a record high in the fourth quarter of 20 years. Year-to-date, Grayscale’s asset management scale has increased from USD 2 billion to USD 20.2 billion, an increase of approximately 10 times.

Figure 2: The scale of gray management assets since the launch (2013.9.25-2020.12.31)

In the past seven years, investor interest has gradually built up and then accelerated rapidly. In fact, the four consecutive record-breaking quarters in 2020 marked a turning point for Grayscale and the entire digital asset. Specifically, the monetary and fiscal measures of governments around the world are a catalyst for the surge in interest in Bitcoin.

Figure 3: The cumulative annual inflow of grayscale since the launch (from 2013.9.25-2020.12.31)

As shown in Figure 4 below, institutional investors continue to increase their allocation scale. The average institutional allocation is US$6.8 million, which is more than double the average US$2.9 million in the third quarter of 20.

Figure 4: Average organization configuration by quarter (2019.1.1-2020.12.31)

With currency inflation becoming an urgent concern, institutional investors took action to allocate funds to Bitcoin. This can be seen in the media and supported by the dialogue between our team and investors. Figure 5 shows that in this paradigm, Bitcoin occupies a central position in the market and our product suite.

Figure 5: Bitcoin trusts accounted for the proportion of institutional investors’ capital inflows (2020.10.1-2020.12.31)

Due to the halving in May 2020, the supply of newly created Bitcoin has slowed down, but the funds flowing into Grayscale have increased significantly. The number of bitcoins flowing into the Grayscale Bitcoin Trust Fund in the fourth quarter of 20 years was almost twice the amount mined in the same period. This trend remains a major factor in the limited supply of Bitcoin in the market.

Similarly, this only shows the size of the inflow, and does not mean that the mined Bitcoin has been directly invested in the Grayscale Bitcoin Trust Fund.

Figure 6: Grayscale Bitcoin trust fund inflows accounted for the proportion of newly mined Bitcoins (2020.10.1-2020.12.31)

With the massive growth and utilization of gray-scale products in the investment community, our proportional management of the circulating supply of various digital assets has increased significantly. During this year, the number of bitcoins in circulation under Gray Management increased from 1.45% to 3.31%. Similarly, in 2020, the proportion of circulating Ethereum managed by Grayscale will increase from 0.47% to 2.61%.

Figure 7: Grayscale assets VS circulation supply

We will provide our standard series of investment activity analysis for the fourth quarter of 20 years and 20 years.

Investment activities under the gray perspective

Grayscale raised US$3.3 billion in the fourth quarter of 2020, bringing its 20-year capital inflow to US$5.7 billion.

Figure 8: Grayscale cumulative inflows by product-the fourth quarter of 2020 # ₁₄ (2020.10.1-2020.12.31)

Figure 9: Grayscale cumulative inflows by product- ₁₅ of 2020 (2020.1.1-2020.12.31)

In the fourth quarter of 2020, the average weekly investment for all products was 250.7 million U.S. dollars, while the average weekly investment for 2020 was 109.8 million U.S. dollars.

Figure 10: inflows weekly gray all products in the fourth quarter and 2020 ₁₆ (2020.10.1-2020.12.31)

Figure 11: Weekly inflow of all grayscale products— ₁₇ in 2020 (2020.1.1-2020.12.31)

In the fourth quarter of 2020, the inflow of funds into the Grayscale Bitcoin Trust Fund reached a record high of $2.8 billion. This brings the inflow of the Grayscale Bitcoin Trust Fund to US$4.7 billion in 2020, which is more than four times the cumulative inflow in the past six years.

Figure 12: Grayscale Bitcoin Trust Fund’s accumulated weekly inflows—the fourth quarter of 2020 (2020.10.1-2020.12.31)

Figure 13: The accumulated weekly inflow of the Grayscale Bitcoin Trust Fund—2020 (2020.1.1-2020.12.31)

In the fourth quarter of 2020, the demand for Grayscale products excluding Grayscale Bitcoin Trust Funds increased to 436.4 million U.S. dollars, an increase of 35% from the previous quarter and an increase of nearly 1,300% from the fourth quarter of 2019. The main reason for the growth was the continuous inflow of Grayscale Ethereum Trust Fund (US$341.8 million), which brought the inflow of Grayscale products excluding Grayscale Bitcoin Trust Fund to US$1 billion in 2020.

Figure 14: Cumulative weekly inflows of gray products other than Bitcoin Trust-Q4 2020 (2020.10.1-2020.12.31)

Figure 15: Cumulative weekly inflows of gray products other than Bitcoin Trust—2020 (2020.1.1-2020.12.31)

Investor profile

In the fourth quarter of 2020, institutional capital accounted for 93% of Grayscale’s total inflows. This was a meaningful increase. At the same time, there were many announcements issued by famous investors and asset managers. For many investors, premature risks quickly turn into late risks.

Figure 16: Overview of Grayscale Investors (Q4 2020 VS 2020)

The geographical source of new gray product investment capital in this quarter weighs slightly higher (55%) for offshore investors, which is the same as in 2020.

Figure 17: Geographical Distribution of Grayscale Investors (Q4 of 2020 VS 2020)

in conclusion

In the words of Thomas Jefferson: “In every country where paper money is allowed, paper money can be abused. It used to be, it is now, and it will always be in the future.” In 2020, institutional investors realized that, Bitcoin is a viable option that can offset the bulkiness of large amounts of paper money and gold. In a world where negative-yielding debt exceeds $17 trillion, we believe that Bitcoin will continue to be the cornerstone of investor portfolios in 2021.

Bitcoin occupies a central position in the investment world, and Grayscale has luckily become one of the main channels of investment in 2020, with a total inflow of approximately US$5.7 billion. We are honored to be one of the fastest growing asset management companies in the world, and we continue to thank investors for entrusting us to invest more than US$20 billion in our products. As the adoption of digital assets accelerates in 2021, we look forward to continuing to serve the investment community.

Grayscale Investment is the world’s largest digital currency asset management company. As of December 31, 2020, its assets under management are approximately US$20.2 billion. Grayscale provides access and exposure to digital currency asset categories in the form of traditional securities through its 9 investment product series (PS: the original grayscale has always been 10 types, now it has been excluded from Ripple and becomes 9 types), without direct Buy, store and custody digital currency. With reliable track records and unparalleled experience, Grayscale’s products operate within the existing regulatory framework, creating safe and compliant risk exposures for investors.

For more information, please visit www.grayscale.co and follow @Grayscale.

Non-GAAP measurement

“Assets under Management” (AUM), “Inflow”, “Total Investment” and “Weekly Average Investment” are calculated using the digital asset reference exchange rate of each gray product. These are not calculated in accordance with US Generally Accepted Accounting Principles (“GAAP”) index of. The net asset value of each product determined in accordance with generally accepted accounting principles is referred to as “NAV” in this report. According to GAAP requirements, for financial reporting purposes, the digital assets of each product are measured at fair value.

Each product determines the fair value of the digital asset held by it based on the price provided by the applicable digital asset exchange. This price is the price of the relevant product in consideration of its main market at 4:00 pm New York time on the evaluation day. The cost basis of the applicable digital asset investment recorded by the applicable product is the fair value of the digital asset determined at 4:00 pm on the day when the authorized participant transfers the product to the product based on the creation basket. The cost basis for product recording may be different from the proceeds received by authorized participants from selling shares of each product to investors.

The investment objective of each product is a stock that reflects the value of the digital asset held by it (based on the digital asset per share), which is determined by referring to the applicable digital asset reference exchange rate, minus the product’s expenses and other liabilities . The product uses two types of digital asset reference exchange rates: (i) The dollar-weighted average price of the digital assets held by the product in the most recent 24 hours before 4:00 pm New York time, on each working day (each ” Volume weighted average (VWAP) price”) and (ii) the volume-weighted index price calculated by applying a weighting algorithm to the price and volume data of digital assets in the last 24 hours, that is, 4:00 pm New York time ( Each “index price”) is taken from the data collected from the digital asset exchanges that trade such digital assets selected by TradeBlock, Inc. (“reference exchange rate provider”). Grayscale believes that calculating the reference exchange rate of digital assets in this way can reduce the impact of abnormal or manipulative transactions that may occur on any single digital asset exchange, and therefore, can provide more reliable prices for related digital assets.

The AUM of each product is calculated by subtracting expenses and other liabilities from the assets of such products (except for U.S. dollars or other legal currencies) and multiplying them by the relevant digital asset reference rate, so it is not calculated in accordance with GAAP. The investment is calculated by multiplying the number of digital assets received each day during the creation process by the index price of the day. The total investment amount reflects the total capital raised using this non-GAAP method during the reporting period. The average weekly investment reflects the average amount of capital raised using this non-GAAP method during the corresponding period.

The following table shows the total investment and average weekly investment of Grayscale Bitcoin Trust and Grayscale Ethereum Trust (using the GAAP cost basis for such investments) and Grayscale Bitcoin Trust and Grayscale Ethereum Trust during the time period shown below. The prices of Bitcoin and Ethereum in the main market of the Ethereum Trust, the reference rate of digital assets used by the trust and the AUM of the Grayscale Bitcoin Trust Fund and the Grayscale Ethereum Trust Fund use the main market price and the reference rate of digital assets.

Grayscale Bitcoin Trust Fund

Grayscale Ethereum Trust Fund

Reference link

1. “Evolutionary Revolution, Introduction to the Investment Advisory Industry”, Investment Advisory Association, 2019,
https://higherlogicdownload.s3.amazonaws.com/INVESTMENTADVISER
/aa03843e-7981-46b2-aa49-c572f2ddb7e8/UploadedImages/publications/Evolution_Revolution_2019_FINAL.pdf

2. “Federal Reserve Payment Research”, Board of Governors of the Federal Reserve, 2019,
https://www.federalreserve.gov/paymentsystems/2019-December-The-Federal-Reserve-Payments-Study.htm .

3. “Federal chartered banks and savings institutions can participate in independent node verification networks and use stable coins for payment activities”, OCC, January 4, 2021,
https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-2.html .

4. As of December 31, 2020.

5. From October 1, 2020 to December 31, 2020.

6. On December 23, 2020, the sponsor announced that after the U.S. Securities and Exchange Commission (SEC) decided to sue in the Federal Court on December 22, 2020, it had stopped accepting private placements of Gray Ripple Trust XRP (“XRP Trust”) New subscription. In 2020, it was decided to file a lawsuit against certain third parties in the Federal Court to prove that XRP is a “securities” under the Federal Securities Act. On January 13, 2021, the promoter announced that it had begun to dissolve the XRP trust. For the above reasons, XRP Trust is not reflected in this report.

7. “Grayscale products other than Bitcoin Trust” include Grayscale Bitcoin Cash Trust, Grayscale Ethereum Trust, Grayscale Ethereum Classic Trust, Grayscale Horizen Trust, Grayscale Litecoin Trust, Grayscale Stellar Coin Trust, Grayscale Zcoin Trust and Grayscale Digital Large-Cap Stock Fund.

8. From January 1, 2020 to December 31, 2020.

9. See footnote 7.

10. Date of establishment: September 25, 2013.

11. Source: Bloomberg, a comparison of ETPs with assets under management exceeding USD 1 billion on January 2, 2020

12. Source: Bloomberg, CoinMarketCap.com, Grayscale. Past performance does not represent future returns.

13. Source: Grayscale, Coin Metrics. Just for comparison. This does not reflect the direct flow of newly mined bitcoins.

14. Grayscale Bitcoin Trust, Grayscale Ethereum Trust, and Grayscale Digital Large Cap Funds regularly stop new investments during the measurement period.

15. Grayscale Bitcoin Trust, Grayscale Ethereum Trust, and Grayscale Digital Large Cap Funds regularly stop new investments during the measurement period.

16. Grayscale Bitcoin Trust, Grayscale Ethereum Trust, and Grayscale Digital Large Cap Funds regularly stop new investments during the measurement period.

17. Grayscale Bitcoin Trust, Grayscale Ethereum Trust, and Grayscale Digital Large Cap Funds regularly stop new investments during the measurement period.

Source link: grayscale.co