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The gray scale saw its assets under management skyrocket when Wall Street used them 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, donations and pension funds, the company said in a quarterly report on Thursday.
The grayscale Bitcoin Trust has become a popular and publicly traded way for investors to gain exposure to cryptocurrency without owning their own currencies. The investment product soared from $ 1.8 billion to $ 17.5 billion in assets year after year.
“We saw a significant acceleration in institutional participation,” said Michael Sonnenshein, who recently took over as CEO of Grayscale Investments. “There is no more professional risk of investing in the digital currency asset class – there is probably more career risk of not paying attention to it.”
The landmark year of the gray scale came when high-profile money managers publicly warmed up for digital currency.
Billionaire hedge fund manager Paul Tudor Jones called bitcoin “the best protection against inflation” and compared it to putting money into tech giants like Apple and Google. Stanley Druckenmiller and Bill Miller are among the other high-profile bitcoin bulls. His support, analysts say, has given Wall Street more confidence to invest.
Institutions accounted for 87% of gray-scale inflows for the entire year, the company said. The average size of these investors’ commitments has doubled in a matter of months. In the third quarter of 2020, investors were putting in about $ 3 million on average and, by the end of last year, they were committing on average $ 6.8 million.
Institutional demand was cited as one of the main reasons for bitcoin to reach $ 40,000 last week and a three-digit high last year. Sonnenshein said that these professional investors often lack the legal or “operational” resources to safely buy and maintain cryptocurrencies.
Digital gold
Many professional investors see this as an alternative to established safe-haven assets, such as gold, and a protection against “perpetual printing of money” by central banks, Sonnenshein said.
“The most common theme for bitcoin investment belief is coming from a gold rotation,” he said. “Investors are also anecdotally sharing that this is where and how they are making room for bitcoin in their portfolios.”
While $ 3 billion has flowed into the Grayscale Bitcoin Trust since mid-October, gold ETFs have lost $ 7 billion, according to JPMorgan. An investment bank strategist also told clients in a note last week that a bitcoin ETF could weigh on prices in the short term and trigger gray-scale outflows. In response to the analyst’s note, Sonnenshein, a former JPMorgan associate, said an ETF would likely be approved, but would not attract gray-scale interest.
“The type of entry we are reporting should be evidence that investors are not expecting an ETF to start participating in that asset class,” said Sonnenshein.
Bitcoin prices have been volatile since they dropped below $ 40,000. After dropping to $ 31,000 on Monday, the cryptocurrency was trading close to $ 39,000 on Thursday morning.
Professional investors may be using the falls as an opportunity to return. When prices drop, Sonnenshein said incoming calls and emails are often meant to put more money to work.
“Investors are used to seeing this kind of price cycle,” he said. “They are using price setbacks opportunistically to double down and increase their positions.”