March 29, 2024

Institutional Investors Build Up Their Assets in BTC and ETH

Institutional Investors Build Up Their Assets in BTC and ETH

Cryptocurrency investment fund Grayscale Investments purchased every third bitcoin mined by miners forlast 100 days. And in April, the fund bought 50% of all ETH mined. At the same time, despite the financial crisis and the fall of the cryptocurrency market in March, shares of Grayscale crypto funds in the first quarter of 2020 attracted record investments, which indicates a growing interest of institutional investors in the crypto industry.

Why does the company need so many coins, what is its current position regarding the crypto market and what role does it play on it?

Grayscale Investors Believe in Bitcoin

Grayscale Investments, a subsidiary of DigitalCurrency Group (DCG), owner of the famous crypto media CoinDesk. The investment fund is the largest institutional holder of bitcoin. The company's main product is the Grayscale Bitcoin Trust (GBTC), with which accredited investors can earn on bitcoin without actually owning it. Grayscale Bitcoin Trust tracks the price of bitcoin based on the TradeBlock XBX index.

Grayscale is accumulating Bitcoin on an impressive scale. Reddit user under the nameu / parakitenoticed that the fund added 60,762 BTC ($548.3 million on the day of publication) in the period from February 7 to May 17. This is a third of the total number of bitcoins mined over the past three months.

The user made a table showing how the number of bitcoins in GBTC changed:

Institutional Investors Build Up Their Assets in BTC and ETH

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As we can see, the pace of purchases of military-technical equipment by the fund is increasingfrom the end of 2019. GBTC has become more aggressive in its acquisitions since early April ahead of the approaching Bitcoin network halving. About 34% of the 60,762 BTC were purchased 17 days before the miner reward cut.

As of May 17, GBTC is runningthere were a total of 343 954 BTC. This is 21% more than the 283,192 BTC held by the fund 100 days earlier. In value terms, the portfolio grew from $ 2.77 billion to $ 3.37 billion.

“Grayscale is just one of many, albeit the largest, ETFs that people use to buy bitcoin, not wanting to mess with private keys and other problems,- commentedu / parakite.

There is a demand for this. The supply is declining. Let's see where we will be in 100 days. ”

88% of Grayscale customers are institutionalinvestors. Most likely, the sharp increase in the pace of the purchase of military-technical cooperation in addition to the last halving is due to the desire of investors to hedge risks during the developing crisis.

Institutional Investors Build Up Their Assets in BTC and ETH

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GBTC share price over the past year, according to Yahoo.Finance. The price of GBTC shares (units) does not coincide with the price of the BTC; it depends on investor sentiment and can be traded either at a premium or at a significant discount. It usually follows Bitcoin, but sometimes the trends diverge. Thus, the difference between the July and current BTC rates is 20–30%, and between the same GBTC shares is about 70%.

Grayscale bought half of ETH mined in April

Grayscale's aggressive crypto purchases have recently beennoticed in relation to ether. So, by April 24, the company bought about 756,539 ETH (exact data is not publicly available) for its Ethereum Trust fund. This is about 48.4% of all 1.5 million coins mined since the beginning of this year. As a result, the company already owns 1% of all coins in circulation and is only increasing the pace of purchases. This was first noticed by a Reddit user under the nicknameu / nootropicat.

According to the latest quarterly reportGrayscale, the influx of investments into ETH reached a record level in the first three months of 2020 - $110 million. This is a very sharp increase, considering that the total investments in ETH over the previous two years amounted to $95.8 million. The total demand for the Ethereum fund increased by almost 2.5 in the quarter times compared to the fourth quarter of 2019.

From the beginning of the year until the end of April, the company issued5.23 million shares of the fund at 0.09427052 ETN apiece. At the same time, shares are traded with a premium of 420% relative to the current price of the coin - $ 92 against $ 17.70. That is, investors are willing to pay extra pretty much not to deal with cryptocurrency on their own.

Most likely, an increase in the rate of coin purchasesis associated with the upcoming update of the network to Ethereum 2.0. It could take place at the end of July, but most likely it will not happen before the end of the year. After the update, the network will become more scalable and will include the possibility of ETH staking - validators will be able to receive passive income for providing their funds to confirm blocks.

The crypto market, by the way, is also preparing for the transitionecosystems to a new stage. Since the crash in March, ETH has risen 55%, from $110 to $202 on the day of publication. At the end of April, CoinDesk drew attention to the increase in the number of long positions in ETH futures - this indicates expectations for further growth of the coin.

Last quarter - the most successful in the history of the company

In May, Grayscale released a report on its first quarter results this year.

"Despite a decline in risky assets this quarter, Grayscale's assets continue to approach record highs, as does our digital asset market share. ”, - the document says.

And this despite the coronavirus pandemic, the global recession and the traditional cryptocurrency market volatility.

A record $ 503 was raised in the first quarter.7 million investments. This is almost twice the previous quarterly maximum of $ 254 million in the third quarter of last year and accounts for 83% of the total capital of $ 1.07 billion raised for the entire 2019. New investors accounted for $ 160 million of raised funds. The main products of Grayscale Bitcoin Trust and Grayscale Ethereum Trust raised $ 388.9 million and $ 110 million, respectively. It is noteworthy that the company reduced the premium on stocks of funds relative to the price of assets.

88% of investments came from institutionalinvestors dominated by hedge funds; 5% - from accredited individuals, 4% - from pension accounts (yes, pension funds are extremely conservative in nature, but also invest in bitcoin against the background of a decrease in the profitability of other assets); 3% came from family offices, and 38% of customers invested in several products at once.

It is noteworthy that two years ago the share of institutional investors was about 50% - it is obvious that they no longer consider bitcoin as something criminal.

“Many of our investors are considering digitalassets as medium and long-term investment opportunities and the main component of their investment portfolios. Quarterly inflows doubled to $ 503.7 million, demonstrating that demand is reaching new peak levels even in conditions of “risk reduction” ”, - the document says.

Institutional Investors Build Up Their Assets in BTC and ETH

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Today, more than 46.5% of the inflow of funds was attracted from multi-strategic investors. Crypto investors accounted for only 11.2% of the inflow, according to the report. Source.

Grayscale is currently operating with tencryptocurrency investment products targeted at institutional investors. They cover PTS, ETN, ETS, BCH, ZEC, XRP, LTC, ZEN, XLM. The value of the assets under his management is more than $ 3.8 billion. GBTC is the most demanded product, most investors invest in it and it takes about 1.7% of the total volume of circulating bitcoins.

Institutional Investors Build Up Their Assets in BTC and ETH

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Aggregate quarterly flow of funds to different Grayscale products. Pay attention to the growing share of investors diversifying portfolios with products tied to altcoins.

Since January of this year Grayscale BitcoinTrust is registered with the U.S. Securities and Exchange Commission (SEC). According to it, the company provides quarterly and annual reports on Form 10-K. The status makes it possible to sell trust shares on the secondary market after 6 months, rather than 12, as previously, and also increases the confidence of conservative investors.

The remaining products comply with OTCQX OTC market reporting standards and are approved by the U.S. Financial Industry Regulatory Authority (FINRA) for public offering.

Institutional Investors Build Up Their Assets in BTC and ETH

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Amount of assets managed by Grayscale as of May 20, 2020.

It is noteworthy that news about the success of Grayscalecomes amid news of panicked investors in traditional assets fleeing market turmoil. Thus, the largest fund managers - BlackRock, Vanguard and State Street Global Advisors - lost several trillion in the capitalization of their assets, and BlackRock in the first quarter saw a net outflow of funds from its long-term investment products for the first time in five years.

Bitcoin is the best asset for hedging portfolios in crisis

At the end of April, Grayscalealso released a separate report analyzing the impact of regulators’ actions during the pandemic and the crisis caused by it and how it affected Bitcoin and the crypto market as a whole.

The document says that fiat currenciesare at risk of devaluation as central banks print more and more money. Even the US dollar, which is the world's reserve currency, risks being devalued if the US Federal Reserve continues to print the currency in trillions. A decrease in interest rates to zero and negative values ​​deprives government bonds of the status of "safe haven" during the crisis.

Therefore, investors are trying to diversifytheir portfolios with alternative tools. Cryptocurrencies are the best choice for this, according to the authors of the report. The text emphasizes the historical significance of gold as a global standard, but it is noted that in the modern digital world it is becoming increasingly burdensome for investors - it has complex logistics.

Bitcoin seems to be resistant to problems withwhich other assets collide with. Therefore, in times of economic uncertainty, the first cryptocurrency is one of the best assets that investors can use to hedge their portfolios. The coin performs better than any other asset, including fiat currencies, government bonds, and traditional commodities like gold. The authors of the report emphasize that Bitcoin has already begun to show signs of becoming a protective asset.

At the same time, the company believes that Bitcoin is greatan asset not only in times of crisis. Thus, in December 2019, Grayscale Investments managing director Michael Sonnenschein said that the company expects an influx of investment in Bitcoin after the transfer of $68 trillion of savings between generations in the next 25 years. Today this capital is invested in traditional assets, but millennials will invest a significant portion of this wealth in cryptocurrencies. Already, according to him, investments in GBTC are among the top five most popular among young people, ahead, for example, of investments in Microsoft and Netflix.

Finally

Unprecedented financialThe actions taken by the US Federal Reserve, as well as the worsening recession, are forcing even the most conservative investors to rethink their current strategies and portfolio composition. Many of them are increasingly beginning to appreciate the fixed emission and non-correlability of Bitcoin - it is becoming a tool for diversifying risks. Growing institutional interest is driving up the price of the coin.

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