Mykola Tys / | LightRocket | Getty Images
Grayscale has seen its assets under management grow, as Wall Street has used it as a proxy to invest in bitcoin.
The New York-based investment firm started last year with $ 2 billion in assets and ended 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 said in a quarterly report on Thursday.
Grayscale’s Bitcoin Trust has become a popular, publicly traded way for investors to expose themselves to cryptocurrencies without owning the coins themselves. Investment income increased from $ 1.8 billion to $ 17.5 billion in year-over-year assets.
“We have seen a significant acceleration in institutional participation,” said Michael Sonnenshein, who recently took over as CEO of Grayscale Investments. “There is no longer a professional risk of investing in the digital currency asset class – there is probably a higher career risk if we don’t pay attention to it.”
The year of the Grayscale banner came when high-quality money managers warmed up publicly to digital currency.
Billionaire hedge fund manager Paul Tudor Jones called Bitcoin “the best hedge against inflation” and compared it to putting money behind technology giants like Apple and Google. Stanley Druckenmiller and Bill Miller are among the other high quality bitcoin bulls. Their support, analysts say, has given Wall Street more confidence in investing.
Institutions accounted for 87 percent of Grayscale’s revenue for the full year, the company said. The average size of commitments from these investors has doubled in a few months. In the third quarter of 2020, investors received an average of about $ 3 million and, by the end of last year, had committed an average of $ 6.8 million.
The institutional demand was cited as a key reason for bitcoin to exceed $ 40,000 last week and a three-digit rally last year. Sonnenshein said those professional investors often do not have the legal or “operational” means to buy and keep cryptocurrencies safe.
Digital gold
Many professional investors see it as an alternative to safe haven assets, such as gold, and hedging against “perpetual printing of money” by central banks, Sonnenshein said.
“The most common theme for convincing bitcoin investment comes from a golden rotation,” he said. “Investors also anecdotally share that there and how they make room for bitcoin in their portfolios.”
At the same time as $ 3 billion joined the Grayscale Bitcoin Trust in 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 cause outflows from Grayscale. In response to the analyst’s note, Sonnenshein, a former associate of JPMorgan, said an ETF is likely to be approved, but would not attract interest from Grayscale.
“The type of inflows we report 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 falling below $ 40,000. After falling to $ 31,000 on Monday, the cryptocurrency traded back nearly $ 39,000 since Thursday morning.
Professional investors may use the declines as an opportunity to return. When there are price reductions, Sonnenshein said incoming phone calls and emails are often linked to putting more money to work.
“Investors are used to seeing these types of price cycles,” he said. “They use price withdrawals opportunistically to double down and add to their positions.”