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Tracking the Institutional Landscape of Investing in Digital Assets (1): Grayscale

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Take stock of the "chess players" behind the digital asset market.

Original title: "Institutional Layout for Investing in Digital Assets (1) Grayscale"

Original source: OKLink

Every year there are things with good market prices, such as the liquor of the year before last, the liquor of last year, the liquor of this year, and the liquor of next year. Baijiu is forever god; Bitcoin is often super god.

(Image source: Sina Weibo)

In the past 10 years, the price of Bitcoin has increased by 12 million times.

Beginning in September last year, Bitcoin ushered in a bull market, rising all the way from $9,000 to a record high of $41,950. As of press time, the currency price fell back to Around $35,000. Bitcoin’s recent rally has led to overall growth in the industry, and on January 7, the total market capitalization of crypto assets crossed the $1 trillion threshold for the first time.

There are probably several reasons for this market.

First of all, in the context of the global epidemic, the economies of most countries in the world have experienced a significant downturn. The Fed has unlimited quantitative easing, and investors have begun to turn to safe-haven assets. As a decentralized payment system based on the blockchain network, the total number of bitcoin tokens is limited to 21 million, which is absolutely scarce and thus becomes an investment choice for investors.

Secondly, Bitcoin, as a private currency, currently lacks effective supervision, and speculation and speculation have also become a factor driving up the currency price.

(data source: OKLink)

< p> But on the whole, the Bitcoin bull market is mainly due to the entry of institutional investors and high-net-worth investors. From Grayscale to Paypal, from MicroStrategy to Fidelity Investments, from Square to Galaxy Digital, institutional and corporate investors continue to buy crypto assets such as Bitcoin, which not only locks positions in disguise, but also stimulates retail investors to convert Bitcoin The market pushes to a high. These institutional investors have injected new impetus into the Bitcoin market and the digital asset market. Taking this opportunity, OKLink launched a series of articles on "Institutional Landscape for Investing in Digital Assets" to take stock of the "chess players" behind the digital asset market.

Barry Hilbert - The Man Behind Grayscale

Grayscale is a pioneer among "institutional investors". And everything starts with its founder, Barry Silbert.

Hilbert is an amazing person. He started investing in Bitcoin in 2012, and also invested in institutions such as Coinbase, Ripple, and Bitpay in 2013. Crypto giants.

In 2004, he founded SecondMarket, a private equity trading platform. In 2013, he operated behind the scenes, pushing SecondMarket to set up two agencies-Grayscale and the prototype department of Genesis Trading. In 2015, SecondMarket was acquired by Nasdaq, retaining the encrypted asset related business. Afterwards, Barry Silbert integrated the two major businesses and personal investment business, and established the well-known DCG (Digital Currency Group) in the industry.

After the establishment of DCG, it has developed rapidly, and now it has 5 subsidiaries including Grayscale, Genesis, Coindesk, Foundry, and Luno. Each is the head agency of their respective tracks, and has directly invested in more than 160 companies related to cryptocurrencies and blockchains.

How many encrypted assets does Grayscale hold?

Grayscale Trust currently holds a total of 10 trust funds and 9 single-asset trust products, corresponding to 9 digital assets such as Bitcoin and Ethereum; There is also a digital large-cap fund, which contains 4 digital assets, and the proportion is determined according to the weighted market value, namely Bitcoin (81.63%), Ethereum (15.86%), Bitcoin Cash (1.08%), and Litecoin (1.43%).

(data source: qkl123.com)

As of the press date, regardless of the assets in the digital market fund, the holdings of Grayscale Bitcoin Trust have reached 606,776, accounting for 3.263% of the total circulation, and the holdings of Ethereum Trust are also 2,935,513. Accounting for 2.571% of the total circulation, it can be called an "industry brave".

Now, Grayscale’s Bitcoin and Ethereum Trust have become companies reporting to the SEC, and they are listed in OTCQX, the highest-level over-the-counter trading market in the United States. Listed, the trading activity ranks among the top ten.

How does Grayscale Trust work?

The 10 trust funds of Grayscale Trust have basically the same operation mode. Let’s take ETH Trust as an example.

First of all, Grayscale Trust will regularly open private placements to qualified investors in the primary market, and this opening period is determined by Grayscale itself . During the opening period, Ethereum Trust supports both cash and Ethereum contributions. If it is a cash contribution, Grayscale will hand over the subscription funds to the authorized broker Genesis, who will buy Ethereum in the spot market; investors can also directly provide physical ETH contributions.

Afterwards, Grayscale will hand over Ethereum to Coinbase Custody for custody, and then distribute the corresponding Ethereum trust shares according to the number of assets subscribed and contributed. There will be a 6-month lock-up period after the capital contribution to obtain the Ethereum Trust shares. After the closed period ends, it can be freely transferred in the secondary market.

It should be noted that all the trusts under Grayscale now have no redemption clauses, they can only enter and exit, and continue to lock positions. Because of this feature, Grayscale is often compared to an "encrypted brave" in the industry. Of course, in the future, if Grayscale is willing and obtains SEC approval, it is also possible to start redemption.

(Source: https://grayscale.co/faq/)

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In addition, each fund of Grayscale will charge a management fee ranging from 2% to 3%, which is calculated on a daily basis and paid in the form of digital assets every month. Like Ethereum, the current procedures The fee is 2.5%. Grayscale’s trust products will be based on the TradeBlock ETX index (24-hour VWAP, a price price index based on trading volume weights) to track the price of the underlying assets, but at present, there is a higher positive premium overall, and the lower the circulation rate, The higher the premium.

(Ethereum Trust and Ethereum Price Curve)

This On the one hand, due to the non-redeemability, long closing period and limited circulation, the supply exceeds demand in the secondary market, resulting in a long-term premium for trust shares. As the lock-up period is lifted, some investors will choose to sell in the secondary market. As the market supply share increases, the premium will continue to decrease.

Prospects of Grayscale

Greyscale is the pioneer of encrypted asset trust. Because of Barry Hilbert's forward-looking vision, Grayscale has gained an excellent first-mover advantage.

In terms of positions, as of the press date, more than 38 institutional investors have publicly held positions in Grayscale Bitcoin Trust. This includes some well-known encrypted asset lending companies and hedge funds, such as BlockFi and Three Arrows Capital. The company owned by the legendary Rothschild family is also on this list.

(data source: https://fintel.io/)

Looking at the scale of fund management, as of the date of publication, the total scale of Grayscale has reached 28.4 billion US dollars. Among them, Bitcoin Trust has about US$24.1 billion, accounting for 84%, Ethereum Trust is about US$3.51 billion, accounting for 12.3%, digital large-cap funds are US$351 million, and the rest are relatively small.

The tuyere produces a huge siphon effect, behind the grayscale , Gradually some chasers appeared. Companies like 21Shares, 3iQ, Fidelity Investments, Skybridge Capital, etc. have launched Bitcoin funds one after another. But from the current point of view, they are still a bit behind Grayscale in terms of management scale and secondary market liquidity.