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Original title: “Observation of the Bitcoin Custody Market: The potential market exceeds 140 billion U.S. dollars. Why is there no “gray” in China? 》
The name Grayscale Investment must be known to no one in Amber anymore. The increasing number of encrypted asset management supports investors’ confidence. “How many Bitcoins does Grayscale buy today?” is already a daily essential knowledge of the industry. point.
Grayscale is just the surface. Just as people only need to value the UI and experience of the app, but ignore the sophisticated algorithms that support the surface. For Grayscale, cryptocurrency custody is their “algorithm.”
The gray scale that buys thousands of bitcoins every day is hosted with Coinbase; PayPal, which buys hundreds of bitcoins every day, is hosted with Paxos.
Starting this year, companies such as Copper, METACO, Anchorage, etc. that we may not know about, their main businesses are cryptocurrency custody, and they have all received top investments.
Cryptocurrency custody, unconsciously, has become the next battlefield for capital competition.
Growing purchase channels
It depends on hosting or the development of channels first. Grayscale is undoubtedly the most representative. Behind the overnight fame, the 7-year-old Grayscale Investment is like a cryptocurrency black hole.
In June 2018, Grayscale’s trust product scale was only about 250 million U.S. dollars, but two years later, this figure soared to 4 billion U.S. dollars. In September this year, the data was updated to 6 billion U.S. dollars; on November 19, Grayscale The latest official data shows that with the increase in holdings and the rise in currency prices, the total assets under management have exceeded 12 billion U.S. dollars.
The black hole is expanding faster and faster.
The following picture, made two weeks ago, probably marks the gap between the scale of gray-scale Bitcoin holdings and other institutions. Block.one, the parent company of EOS, once stated that 140,000 Bitcoins were allocated at the end of 2018 . This number was shocking at the time, but now the gray scale is nearly four times that of Block.one.
Gray’s parent company, Digital Currency Group (DCG), is a diversified group that integrates holding and investment. It has invested in more than 30 countries around the world, including CoinDesk, Coinbase, Blockstream, Circle, BitGo and more than 150 blocks Chain enterprises, covering all segments of the encryption track.
In 2013, DCG founder Barry Silbert persuaded the board of directors to take out part of the funds to establish Grayscale Investment. In the early days, it only provided accredited investors and institutions with opportunities to obtain Bitcoin in the form of private equity.
After two years of compliance efforts, Grayscale Bitcoin Trust products appeared in the U.S. stock market (OTC Market) in 2015 and were directly opened to investors in the securities market.
According to the statistics of Chain Hill Capital, there are currently at least 23 companies holding Grayscale Bitcoin trust shares, including crypto lending companies, hedge funds, mutual funds, private wealth companies, consulting companies, and family offices, among which Roth The figure of Ark Invest, founded by Rothschild Invest and the female version of Buffett Catherine Wood.
Grayscale Bitcoin Trust holdings share mapping of 23 institutional investors: Chain Hill Capital
Regardless of whether it is buying gray trust products or cryptocurrencies purchased through PayPal, users can only trade but cannot withdraw cash. These huge amounts of encrypted assets that may circulate among hundreds of millions of users are stored in more secure custodians.
According to Pantera Capital’s data, the number of bitcoins purchased through PayPal every day accounts for 70% of the daily output. It can be estimated that PayPal’s daily purchases are about 630, and these coins are hosted in Paxos. The more than 520,000 Bitcoins that support Grayscale Trust products are hosted in Coinbase Custody.
According to data from Chain.info, the cold wallet of Coinbase Custody, which helps Grayscale carry out custody, holds more than 930,000 Bitcoins worth more than $17 billion, of which more than half come from Grayscale.
Behind the two trustees is the smell of capital.
In February of this year, Copper completed $8 million in Series A financing; in July, METACO’s Series A financing was oversubscribed twice, and Standard Chartered Bank participated in the investment; in the same month, Anchorage also completed $40 million in financing, with the participation of payment giant Visa; In December, Curv completed a financing of 30 million US dollars. The main business of these companies that everyone is not familiar with is encrypted custody. Perhaps these names will be known soon.
There are giants besides capital. In October of this year, the media reported that JP Morgan Chase had contacted Fidelity Digital Assets, Paxos and many other encryption institutions to explore the possibility of providing encrypted custody services. A similar situation is Citibank.
All phenomena indicate that the custody field is a new battlefield that has not yet been tapped.
However, the voice of Chinese crypto entrepreneurs seems to be missing here.
Why is there no “gray scale” in China?
The power of Grayscale is that they introduced Bitcoin into the US stock market, which has the best secondary market liquidity in the world. The daily trading volume of GBTC is almost US$400 million. Although it cannot be compared with Tesla, which has a daily trading volume of US$27.5 billion, the trading volume of GBTC is almost the same as that of giants such as Starbucks and Oracle. It has even increased by 24 times this year. The medical darling NVAX.
The premise of the transaction volume of 400 million US dollars is “compliance”, which is also considered to be the biggest reason why there is no gray scale in China. The objective environment is the existence of the domestic regulatory environment, and subjectively, the mentality of many practitioners is another issue.
Those entrepreneurs who enter the market with a money-trapping mentality are not really optimistic about the crypto industry, and they do not consider compliance at all. Some of them even immigrate overseas in order to avoid risks, as long as the regulatory policies are introduced. “Going to sea” is their excellent reason, and “returning to the community” has also become the last fig leaf for some entrepreneurs with a money-trapping mentality.
Now that custody has become a trend, domestic crypto entrepreneurs have also begun to try, such as crypto financial service provider PayPal Finance.
“Since the Hong Kong No. 9 card introduced new regulations in April this year, allowing the proportion of cryptocurrencies in specially established funds to exceed 10%, we have begun work related to (fund products).” PayPal Finance CEO Yang Zhou revealed , They will launch BTC, ETH, and BCH three types of encrypted asset products next year. “It is also a passive fund like Grayscale.” (Rhythmic Note: Passive funds refer to funds that do not support active operations.)
Yang Zhou said, “Compared to the cost of capital, the more important aspect of launching this type of product is internal control, especially the design of audit and custody mechanisms (which must meet regulatory requirements).”
In addition to PayPal Finance, there are two teams that may launch similar products, Matrixport and Cobo, but the two seem to have no plans yet. Among them, Cobo founder Shenyu has clearly replied to the rhythm that there is no such plan.
This means that if PayPal Finance can launch the product as scheduled in January next year, it may be the first crypto team in China to eat crabs.
The increase in fund products means that the crypto custody market will be much larger than it is now.
“There is still room for growth of 7-8 million bitcoins in the global custody market”
Encrypted asset custody is a lucrative but unobtrusive business.
Recently, Coinbase head Brett Tejpaul revealed in an interview that since April this year, Coinbase Custody’s institutional assets under custody have increased by 14 billion U.S. dollars, and that it is currently “measurement of new capital entering the crypto field”; and the scale of assets under management has reached The Swiss bank Julius Baer, a $427 billion Swiss bank, has also increased its profits by 34% after launching its bitcoin custody service.
On one side is the intensive deployment of institutions, and on the other side is the continuous growth of the scale of trust products. Yang Zhou predicts that according to the current momentum of Grayscale’s holdings, by the end of 2021, the scale of Bitcoin trust held by Grayscale is estimated to reach the order of 2 million.
“According to the current total circulation of 18 million bitcoins, excluding the nearly 4 million permanently lost, as well as the part retained by the centralized trading platform, self-storage private keys and other institutions’ custody, the global custody market is expected to have 700-800 Ten thousand bitcoins have room for growth.”
8 million, according to the price of 18,000 US dollars in Bitcoin, that is about 144 billion US dollars in scale.
As of November 26, Grayscale holds a total of 532,400 Bitcoins. We cannot predict how the increasing scale of Grayscale Trust will eventually reach.
Behind institutions entering the market and buying bitcoins, the crypto custody market has become another practice field for crypto entrepreneurs to compete.
Traditional financial giants and the capital of the crypto industry have begun to deploy, and the encryption entrepreneurs who have been deeply involved in this industry have responded relatively slowly. Now, on the eve of Bitcoin fund products becoming mainstream investment targets, it is time to act. Up.