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On a grayscale, its managed assets skyrocketed as Wall Street used it as a proxy to invest in bitcoin.
The New York-based investment firm kicked off last year with $ 2 billion in assets and ended up with more than $ 20.2 billion. This 900% increase was driven by demand from institutional investors, such as hedge funds, endowments and pension funds, the company reported Thursday in a quarterly report.
Grayscale’s Bitcoin Trust became a popular and marketed way for investors to expose themselves to the cryptocurrency without owning the coins. Investment income increased from $ 1.8 billion to $ 17.5 billion in assets year-over-year.
“We saw a significant acceleration in institutional participation,” Michael Sonnenshein, who recently took over as CEO of Grayscale Investments, told CNBC. “There is no longer a professional risk of investing in the digital currency asset class; there is probably more professional risk in not paying attention to it.”
The year of the gray flag came when high-profile money managers publicly warmed the digital currency.
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, analysts say, has given Wall Street more confidence to invest.
Institutions accounted for 87 percent of Grayscale’s revenue year-round, the company said. The average size of these investors ’commitments doubled in a matter of months. In the third quarter of 2020, investors were earning about $ 3 million on average, and by the end of last year, they were committing an average of $ 6.8 million.
Institutional demand has been cited as a key reason for Bitcoin topping $ 40,000 last week and a three-digit concentration last year. Sonnenshein said those professional investors often do not have the legal or “operational” means to buy and hold cryptocurrencies securely.
Or digital
Many professional investors see it as an alternative to established safe haven assets, such as gold, and as protection against “perpetual money printing” by central banks, Sonnenshein said.
“The most common theme for the conviction of investing in bitcoin comes from a gold rotation,” he said. “Investors also anecdotally share where it is and how they are making room for Bitcoin in their portfolios.”
At the same time that $ 3 billion has flowed into the Grayscale Bitcoin Trust since mid-October, gold ETFs lost $ 7 billion, according to JPMorgan. An investment bank strategist also told clients in a note last week that a bitcoin ETF could weigh prices in the short term and trigger outflows from grays. In response to the analyst’s note, Sonnenshein, a former JPMorgan associate, said an ETF is likely to be approved, but would not withdraw interest from the grayscale.
“The type of entry we are reporting should be proof that investors do not expect an ETF to start participating in this asset class,” Sonnenshein said.
Bitcoin prices have been volatile since they fell below $ 40,000. After falling to $ 31,000 on Monday, the cryptocurrency was trading again at about $ 39,000 as of Thursday morning..
Professional investors may be using the declines as an opportunity to re-enter. When there are setbacks in price, Sonnenshein said incoming phone calls and emails tend to spend more money on work.
“Investors are used to seeing these kinds of cycles in the price,” he said. “They’re using opportunistic price pullbacks to double and add to their positions.”