Report: Grayscale Bitcoin products underperformed the spot market in October


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CryptoCompare reports that Grayscale’s exchange-traded products (ETP) have generally underperformed the spot market this month.

The Digital Large Market Capitalization Fund (GDLC) has fallen 19.9% ​​in the past 30 days.

Nevertheless, Grayscale still has the highest market value and daily trading volume of encrypted ETP.

Although the inflow of funds from July to September exceeded US$1 billion, the October performance of the digital asset management company Grayscale was rather flat.

On October 14, Grayscale announced its best quarterly performance so far. Grayscale stated in its financial report for the third quarter of 2020 that the inflow of funds for all of the company’s products was US$1.05 billion. So far this year, the figure is US$2.4 billion, which is more than twice the total amount raised in 2013-2019.

Its most popular product, Grayscale Bitcoin Trust, had inflows of US$719.3 million in the third quarter, and total Bitcoin asset management (AUM) increased by 147% in 2020. Encrypted products other than Bitcoin Trust accounted for 31% of the total investment of $1 billion. The quarterly capital inflows of Grayscale’s LTC and BCH trust funds and “Large Cap Fund” both increased by 1400%.

The company said that 81% of its investment in the third quarter came from institutional investors and 57% came from investors who invested in multiple products. This reflects the growing interest of investors in crypto assets other than Bitcoin.

According to the latest Digital Asset Management Review released by CryptoCompare today, “Grayscale products generally perform poorly compared to the market.”

Exchange-traded products (ETP) are an investment whose price depends on the value of the underlying product, in this case cryptocurrency. They are popular with investors who want access to such assets but do not want to be responsible for owning and storing them.

Although ETP should track the price of the underlying asset, their price changes may be different, because ETP can be traded at a premium or discount.

In terms of scale, Grayscale is the market leader in cryptocurrency exchange trading products. Its Bitcoin Trust has a market value of US$5.8 billion, and the Ethereum Trust product has a market value of US$1.25 billion. This dwarfs the Bitcoin products of ETC Group and Wisdom Tree, which have a market value of $60.1 million and $34.5 million, respectively.

Nevertheless, the performance of ETC Group and Wisdom Tree products in October was better than Grayscale.

In fact, in the past 30 days, ETC Group and WisdomTree’s ETP outperformed the spot market, rising 7.7% and 7.3%, respectively, and the spot market rose by 6.6%. This means that despite the fees (consumers pay storage fees to ETP providers), the rate of return of these funds is higher than what investors can get by investing their money in actual cryptocurrency.

At the same time, Grayscale’s Bitcoin Trust Fund and Ethereum Trust Fund rose by 3.0% and 3.4% respectively in 30 days. The former underperformed the market, and the latter outperformed the market.

“The gray-scale ETH/USD trust products performed poorly over the entire 30-day period, 10% lower than the equivalent CCCAGG ETH/USD spot price,” CryptoCompare wrote in the report, “However, due to the start of Ethereum Appreciation, the return rate (up to 16%) in the second week of October once again exceeded the market.”

However, grayscale’s diverse products have not been improved. The Grayscale® Digital Large Cap Fund (GDLC), which is linked to the prices of BTC, ETH, XRP, BCH and LTC, fell 19.9%. Unlike single-asset trusts, GDLC funds use a “rule-based portfolio construction process”, which means that its allocation ratio will change.

Note: On August 31, Grayscale announced that its Grayscale®Digital Large Cap Fund (transaction code GDLC) will resume private placement. The fund conducts regular private placements throughout the year and is currently available for daily subscription by qualified investors.

The fund enables investors to obtain a market-value-weighted portfolio of large-value digital currencies through a single investment tool without the need to directly purchase, store and custody digital currencies. Through a rule-based approach to portfolio construction, the fund’s goal is to cover more than 70% of the digital currency market and re-evaluate it every quarter; however, the weight of each fund component changes every day, and in New York time It will be announced around 4:00 pm. After a one-year holding period, private equity investors can choose to sell their shares at a price determined by the market.

As the trading volume of crypto ETP increased by 2.2% this month to $66.6 million per day, people’s interest in these products increased slightly, most of which came from Grayscale. According to data from CryptoCompare, “The average transaction volume of Grayscale Bitcoin Trust products in October was $57.2 million, which still accounts for the vast majority of ETP daily transaction volume.”

Of course, we need to note that this is only a short-term situation. Whether users will continue to trust Grayscale depends on the future performance of their trust products.