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Grayscale saw its assets under management skyrocket when Wall Street used it as a proxy to invest in bitcoin.
The New York-based investment firm started with $ 2 billion in assets last year and ended with more than $ 20.2 billion. The 900% increase was driven by demand from institutional investors such as hedge funds, donations and pension funds, the company said in a quarterly report on Thursday.
Grayscale’s Bitcoin Trust has become a popular, publicly traded way for investors to gain exposure to cryptocurrency without owning the coins themselves. The investment product increased year-on-year from $ 1.8 billion to $ 17.5 billion in assets.
“We have seen a significant acceleration in institutional participation,” said Michael Sonnenshein, who recently took over as CEO of Grayscale Investments. “There’s no longer a professional risk to investing in the asset class of digital currencies – there’s probably more career risk if you do not pay attention to it.”
Grayscale’s banner year came when high-profile money managers warmed up the digital currency in public.
Billionaire hedge fund manager Paul Tudor Jones called bitcoin the ‘best inflation hedge’ and compared it to putting money behind technology giants like Apple and Google. Stanley Druckenmiller and Bill Miller are among the other high-profile bitcoin bulls. Their support, according to analysts, has given Wall Street more confidence to invest.
The company accounted for 87% of Grayscale’s inflows for the full year. The average obligations of the investors doubled within a few months. In the third quarter of 2020, investors invested an average of about $ 3 million and invested an average of $ 6.8 million by the end of last year.
Institutional demand is cited as a major reason why bitcoin contracted more than $ 40,000 last week and a triple-digit figure last year. Sonnenshein said that professional investors often do not have the legal or ‘operational’ function of buying and holding cryptocurrencies securely.
Digital gold
Many professional investors see it as an alternative to established safe-haven assets, such as gold, and as a hedge against ‘perpetual money pressure’ by central banks, Sonnenshein said.
“The most common theme for investment conviction in bitcoin comes from a rotation of gold,” he said. “Investors also share anecdotally that this is true and how they are making room for bitcoin in their portfolios.”
At the same time as $ 3 billion has been flowing into the Grayscale Bitcoin Trust since mid-October, gold ETFs have lost $ 7 billion, according to JPMorgan. An strategist for the investment bank also said in a note to clients last week that a bitcoin ETF could weigh prices in the short term and cause outflows from Grayscale. In response to the analyst’s letter, Sonnenshein, a former JPMorgan associate, said an ETF was likely to be approved, but that it would not attract interest in Grayscale.
“The kind of inflow we are reporting should provide evidence that investors are not waiting for an ETF to participate in this asset class,” Sonnenshein said.
Bitcoin prices have been volatile since falling below $ 40,000. After falling to $ 31,000 on Monday, the cryptocurrency traded close to $ 39,000 as of Thursday morning.
Professional investors may use the declines as an opportunity to re-enter. When there is a setback in the price, Sonnenshein said incoming calls and emails are often about more money at work.
“Investors are used to seeing such cycles in the price,” he said. “They use the price withdrawals opportunistically to double and add to their positions.”