What is Grayscale Investments? The most important thing about the company

Main

• Grayscale Investments is a company that manages cryptocurrency trusts and other investment products.
• The Grayscale Bitcoin Trust, GBTC, was the first regulated instrument that allowed institutional investors to invest in BTC.
• A key element of the company’s development strategy is the transformation of GBTC into an exchange-traded fund (ETF).

Who founded Grayscale?

The American company Grayscale Investments appeared in 2013. It was founded by the owner of the well-known venture firm Digital Currency Group in the crypto industry, Barry Silbert. It owns other assets, including the Genesis Global Trading lending platform and CoinDesk media.

Shortly after founding, Grayscale floated its first and most famous cryptocurrency trust, the Bitcoin Investments Trust (GBTC). Trust shares could be purchased by accredited investors. GBTC later received from FINRA approval for the right to trade, after which it was listed on the regulated over-the-counter platform OTCQX.

What is a trust?

A trust is a legal structure to which various assets can be added to the balance sheet. Any legal product that has value can be contributed to trusts – money, shares in a business, securities, property, and even crypto assets.

Trust shares may be traded on the stock market or over the counter. The peculiarity is that their buyer actually invests in the underlying asset, but not directly, but indirectly.

Who invests in Grayscale trusts and why?

Crypto trusts are often sold at a “premium” to the spot price of the underlying asset, and Grayscale also takes a 2% management fee, it makes sense to invest in these Grayscale products only for the long term and only for large investors. However, this product solves one important problem for them – legal.

For professional participants in the financial sector, the legality of the investment object is a basic condition. Therefore, Grayscale products have become the first way for institutional investors to passively invest in cryptocurrencies in the absence of the necessary legal framework.

In addition, crypto trusts have some other advantages. In particular, they allow the investor to avoid the problem of secure storage of large amounts of cryptocurrencies. Also, when Grayscale trusts were launched in the US, there were still no clear rules regarding the taxation of digital assets, and GBTC and similar products are a traditional asset with an understandable tax payment scheme.

In 2022, retail investors using the Robinhood app will be able to trade Grayscale investment products.

How much do Grayscale trusts cost?

Each share of the Grayscale trust is backed by a certain amount of the underlying asset – cryptocurrencies, but their prices differ.

The phenomenon of “Grayscale premium” is known in the crypto industry, when the trust is traded at a premium to the price of the underlying asset on crypto exchanges and at the same time has demand. This trend is an indicator of sentiment among institutional investors.

If the “whales” are ready to overpay for the trust, then the cryptocurrency market is bullish.

It happens the other way around: a Grayscale trust trades at a discount to the price of the underlying asset, which means that a bearish trend prevails.

What cryptocurrencies are available in Grayscale trusts?

The first and most popular product of Grayscale Investments is the GBTC bitcoin trust. As of May 2022, the company operates similar products based on a number of other crypto assets:

• Ethereum (ETH)
• Basic Attention Token (BAT)
• Bitcoin Cash (BTC)
• Decentraland (MANA)
• Chainlink (LINK)
• Ethereum Classic (ETC)
• Filecoin (FIL)
• Horizen (ZEN)
• Litecoin (LTC)
• Livepeer (LPT)
• Solana (SOL)
• Stellar (XLM)
• Zcash (ZEC)

Where to see the current value of the “Grayscale premium”

Grayscale publishes the discrepancy between the value of its trusts and the underlying asset on its website. For example, on this page you can see a graph with statistics on the largest Grayscale trust – Grayscale Bitcoin Trust.

How much money have you invested in Grayscale products?

Grayscale purchases the underlying asset for its trusts based on demand and the amount of capital invested in them. Being the main instrument for investing in digital assets for “whales”, Grayscale’s Assets under management (AUM) grew not only along with the crypto market, but also overtook it in dynamics.

If in April 2019 the AUM indicator was a little over $1 billion, then just two years later, in the spring of 2021, it already exceeded $50 billion. By May 2022, due to a correction in the crypto market, the AUM value also decreased, to about $26 billion. of which more than $18.7 billion is accounted for by GBTC.

Due to the popularity of the first cryptocurrency among institutional investors, Grayscale Investments has become the world’s largest known holder of bitcoin. According to the Bitcoin Treasuries website, in May 2022, the company owned almost 655,000 BTC.

What other investment products does Grayscale have?

In addition to trusts for individual digital currencies, Grayscale offers funds with an underlying asset from a basket of cryptocurrencies:

• Grayscale Decentralized Finance Fund – tokens of DeFi projects.
• Grayscale Digital Large Cap Fund – crypto assets with high capitalization.
• Grayscale Smart Contract Platform Ex-Ethereum Fund are native coins of blockchain platforms with smart contracts.

In February 2022, Grayscale also launched its first exchange-traded fund (ETF), Grayscale Future of Finance (GFOF). Its underlying asset is the shares of more than 20 public companies operating in the field of cryptocurrencies. It is traded on the New York Stock Exchange (NYSE).

A few months later, Grayscale floated a new UCITS ETF, which is a wrapper around GFOF.

How is Grayscale developing?

The key element of the company’s strategy is the launch of a spot bitcoin ETF in the United States, which they want to open on the basis of GBTC. It should provide access to investments in the first cryptocurrency to millions of individual investors who trade in the stock market. Polls show the presence of significant potential demand for such an exchange-traded fund.