In the past week, Bitcoin has performed very well among global assets. As the currency price broke through last year’s high point to reach $15,900, the market value of the digital currency market has also jumped another level. Traditional large institutions on Wall Street such as Grayscale achieved an AUM of $9.1 billion on November 6. New record.
As the leading investment and asset management company in the current digital currency market, Grayscale has always attracted attention. For example, on October 13th, the ETH trust registration application submitted to the United States Securities and Exchange Commission SEC was officially approved. Grayscale ETH Trust became its second SEC-compliant digital asset investment tool after BTC Trust. As soon as the news came out, it immediately triggered heated discussions in the market. So, about what Grayscale Trust is, how it operates, what is its asset management status, and what profound impact it has on the digital currency market, the author will provide readers with a reference through this article.
Introduction to Grayscale Investment
“Invest in a Digital Future” is the slogan written on the official website of Grayscale. After noticing the trend of digitization in the early years and the value of digital currency that is different from conventional economic, political and social systems, Grayscale was formally established in 2013 to provide investors with transparent and familiar trust investment products to help them cope Digital currency investment. Grayscale founder Barry Silbert is also the CEO and founder of Digital Currency Group (DCG), which has a huge investment landscape in the field of digital currency and blockchain.
“Entrusted by others, manage money on behalf of others.” Trust (Trust) has been developed in the traditional economic and social system for a long time. It usually refers to that the trustor entrusts the legally owned property to the trustee based on the trust of the trustee (trust investment company). Willingness to conduct management or punishment in his own name for the benefit of the beneficiaries or for a specific purpose. The same is true for the grayscale trust principle. Customers can purchase the corresponding trust shares with cash or digital currency. Take its most representative product, Bitcoin Trust (GBTC) as an example. At this stage when Bitcoin ETF has not yet been approved by the SEC, it is a compliant way to passively invest in Bitcoin. Customers can use cash or Bitcoin to pay Grayscale buys several GBTC shares and trades them on the traditional OTCQX market. As of November 8, Beijing time, Grayscale had a total of 516 million GBTC shares in circulation, and the customer’s holding of 1 share represented the 0.00095299 bitcoins behind it. Due to various costs, market frictions and expectations, GBTC tends to have a premium over Bitcoin. The current cost of investing in Bitcoin through GBTC is about 18,000 US dollars, while the cost of buying Bitcoin itself is 15,000 US dollars. There is an 18% price difference between the two.
In addition to the premium, Grayscale customers usually have to pay an annual management fee of 2% to 3%. So, what factors make them choose to buy Grayscale Trust instead of the digital currency itself? The author believes that in addition to the compliance advantage, there are two core reasons. According to Grayscale’s recent Q3 quarterly report, Grayscale’s clients in the past year included 80% of institutional investors, 12% of qualified individual investors, 4% of family offices and 3% of retirement accounts. American customers accounted for nearly half (44%), and offshore accounts for 56%. On the one hand, the vast majority of these customers should be traditional investors. Facing the new investment market of digital currency, the form of trust is more easily accepted by them. While avoiding learning costs, customers do not need to worry about currency custody, loss and transaction issues. On the other hand, trust products can enjoy certain tax concessions in the United States, which are highly valued by American investors.
Grayscale customer types and regional distribution. Mapping: Cointelegraph
Analysis of the composition of gray trust
As of November 8th, Beijing time, Grayscale has managed ten digital currency products, with an asset management scale of US$9.1 billion, equivalent to 2.1% of the current digital currency market. The specific key information of each trust or fund is shown in the table below. It can be seen that in addition to the large currency trusts with the top market value, Grayscale has also invested in niche currencies, such as Horizen (ZEN). GDLC is a special index fund that tracks the weighted market value of five major currencies. Among these existing products, Bitcoin Trust has the largest scale, accounting for nearly 86%. The amount of currency held behind it has reached 2.75% of the current Bitcoin circulation, which is a very high proportion. The second-ranked Ethereum Trust was established late and has shown substantial growth in the past year, and now accounts for 2.2% of the circulating market value of Ethereum. In contrast, the scale of other products is still small, accounting for only 3.4% of the overall gray scale. In addition, judging from the asset price changes of the underlying assets in the past year, BTC, ETH and ZEC all exceeded +40%, which is more optimistic than most traditional financial products.
Grayscale’s current asset management products Tabulation: Cointelegraph
Grayscale Bitcoin Trust has experienced very strong growth in the past two years. After the Bitcoin halving this year, its inflow as a percentage of Bitcoin mining in the same period has reached a new height. Take the recent third quarter as an example, this figure reached 77%, which means that most of the new bitcoin supply has been absorbed by Grayscale Trust. In addition, it should be noted that GBTC does not support customer redemption so far, and has a one-year lock-up period, which plays a supporting role that cannot be ignored at the current stage of bitcoin prices.
Grayscale Bitcoin Trust quarterly inflow / Bitcoin mined during the same period Charting: Cointelegraph
The value and significance of the gray-scale layout of the encryption industry
In the context of the prevalence of quantitative easing policies and the promotion of financial technology innovation, digital currencies are gaining more and more attention in traditional fields. With the gradual advancement of blockchain and smart contract technology, and the increasing variety of application scenarios, the value of digital currency is being demonstrated. To invest in the digital future, trust institutions like Grayscale are indispensable. In general, the author believes that its significance lies in:
1) At this stage, the compliant investment tools approved by the SEC are still limited, and Grayscale Trust is currently the best choice for qualified investors to make passive investments. In the past few years, the road to the emergence of digital currency ETFs has been bumpy, and it will take time for the much-anticipated ETF application to succeed. Grayscale Trust provides customers with convenient investment tools, especially investors from traditional fields.
2) Grayscale acts as a guide to continuously inject new power into the digital currency market. The addition of a large number of traditional institutional funds has also made this emerging market increasingly specialized and mature.
3) Relatively speaking, most investment and asset management institutions in the digital currency market are still relatively immature. Institutions like Grayscale can set an excellent example for the industry by virtue of their professionalism, transparency, compliance and scale advantages.
Just like the gray-scale slogan “Invest in a Digital Future”, I believe that with the help of professional trusts, it is worth waiting to see when the digital future will truly arrive.
As a blockchain news information platform, Cointelegraph Chinese provides information only representing the author’s personal views, has nothing to do with the position of Cointelegraph Chinese platform, and does not constitute any investment and financial advice. If you need to reprint, please contact the relevant staff of Cointelegraph.
