On the evening of December 3, Beijing time, Grayscale Trust held an online investor conference. Executives from well-known institutions such as JPMorgan Chase, Barron Group, and Mastercard attended the meeting, conveying to the outside world that capital predators discuss the crypto industry Imagination of the future.
The continuous increase in the holdings of encrypted assets shows that the gray scale energy exploded, showing its compliance background and sparing no effort to promote the role. As a result, more and more investment institutions have entered the world of encrypted assets. Through the issuance of funds such as GBTC and ETHE, it has successfully placed encrypted assets on the U.S. OTC trading market, extending an orthodox route.
Grayscale is proud to take the initiative, and investment institutions and qualified investors are the gold masters. On the one hand, they are optimistic about the anti-inflation, scarcity and other characteristics of encrypted assets to make value investments; on the other hand, they also hope to leverage the premium of GBTC over BTC to arbitrage the US stock market.
Due to the suspension of the redemption mechanism, analysts in the encrypted asset market believe that the risk of smashing the market in a short period of time is low. This means that if the premium rate of assets such as GBTC drops or even drops to a negative number, the investors behind Grayscale may take the lead in hitting the market, and Grayscale will stop increasing or even reducing its holdings. “Avalanche” is not impossible, but it is a matter of time.
The gray scale of the giant whale may be the honey at this time and the arsenic at that time. However, from another perspective, the exploration of compliance by institutions such as Grayscale and Paypal will help new funds enter the market. More importantly, their endorsements have pushed this emerging financial market out of small circles.
Big head like a savior
On December 3, when BTC oscillated around the $19,000 mark, the institution Grayscale Trust made another move. On the same day, it increased its holdings by 7,188 BTC and 12,188 ETH, the largest increase in a single day in the past half a month. .
The familiar plot is here again. On that day, both BTC and ETH showed an upward trend. BTC rose from US$18,900 to a maximum of US$19,500, an increase of over 3%, and ETH also closed from US$589 to US$618.8, an increase of 5%.
Grayscale once again demonstrated its impact on this new market with its strong purchasing power. Grayscale Trust, established in 2013, has become the most important force in the encrypted asset market. Especially in this round of the market’s upward cycle, Grayscale’s continued increase in holdings has been talked about.
Interestingly, this financial giant for investment institutions does not seem to care about the habit of real-time transactions in the currency market 7*24 hours. They follow the trading hours of traditional American financial markets. For example, Grayscale has holidays.
In the past month, if you observe the trend of BTC and the movement of gray scale, you can see an obvious pattern-once gray scale “off duty” on the weekend, BTC can easily get out of the downward trend; and after gray scale goes to work, it becomes ” Many heads,” and the market rose immediately.
November 26th this year is the Thanksgiving Day in western countries, and the gray scale holiday. As a result, BTC opened from US$19051 to US$16,904, a drop of more than 10% that day, setting the largest single-day drop since “3·12”. Later, the market began to improve with the gray “business”. In the two days from November 29th to 30th, the BTC rebounded sharply, rising from US$17,516 to a maximum of US$19,988, creating a new record high.
Grayscale always seems to be able to pull the market back to the upward channel, just like the “savior” of the encrypted asset market.
According to QKL123 data, as of December 3, Grayscale Trust held 546,544 BTC, accounting for approximately 2.95% of the current total BTC circulation. Based on the closing price of $19,542 on the day, the market value of Grayscale’s BTC assets exceeded 10.6 billion U.S. dollars. .
In addition to BTC, Grayscale also provides 8 other single-encrypted asset trust investment products, opening exposures to BCH, ETH, ETC, ZEN, LTC, XLM, XRP, ZEC, and 1 diversified large-cap fund product . Among them, Bitcoin Trust (GBTC), Bitcoin Cash Trust (BCHG), Ethereum Trust (ETHE), Ethereum Classic Trust (ETCG), Litecoin Trust (LTCN) and Digital Large Market Capitalization Fund (GDLC) have been traded at the highest level in the United States The OTCQX market is listed for free trading by investors in the secondary market.
Since the beginning of this year, Grayscale Bitcoin Trust and Ethereum Trust have successively successfully registered with the SEC (Securities and Exchange Commission) in the United States, becoming cryptocurrency investment tools reported to the SEC. At present, the scale of these two trust products accounts for about 95% of the total market value of gray holding assets, of which the scale of Bitcoin trust accounts for more than 80%.
Recently, Coin98 Analytics published a set of statistics on Twitter. In November 2020, the number of BTC held by Grayscale was nearly twice the number of BTC mined by miners in the same period. Reflected in the market, BTC opened from US$13,710 that month and closed at US$19,310, a single month increase of 40.8%.
Nowadays, in the eyes of many crypto-asset investors, Grayscale is one of the biggest promoters of the arrival of the bull market. Whenever the market goes down, there are always people in the community praying for Grayscale to rush to sweep the goods and regain its strength. To a certain extent, the gray scale of willful “buy, buy, and buy” has become an operational indicator for some currency investors.
No redemption but no entry but no exit?
During Bitcoin’s skyrocketing period, Grayscale played a leading role. Some investors who had not had time to get on the bus ridiculed that Grayscale only buys but not sells, and “does not emphasize martial arts.” However, as the price of BTC broke through the highest point in history, some people began to worry that once the grayscale shipments, it may lead to an avalanche of the encrypted asset market.
Most people only know that Grayscale is a giant whale of encrypted assets. To find out whether it will hit the market, you need to understand the operating mechanism behind it. Including who is buying or custody of encrypted assets, and whether there is a “lock-in” mechanism.
As a crypto asset investment management company, Grayscale was established in 2013 by the Digital Currency Group. At the beginning of its birth, it was obsessed with taking the compliance route and only supported subscription by “qualified investors”.
According to Grayscale’s official website, qualified investors must meet one of the following conditions: personal annual income of at least US$200,000 (or a combined income of US$300,000 with both spouses); and net assets of more than US$1 million, either alone or with their spouse ( Excluding residential real estate); Hold a Series 7, Series 65 or Series 82 financial industry certificate. For an institution, it needs to have liquid assets of more than US$5 million, or all shareholders are qualified investors.
From a rule point of view, Grayscale itself does not pay. Its main income is to collect management fees from its customers on an annual basis. The rate of each investment product is different. The management fee for Bitcoin trust is 2%, and BCH and ETH are 2.5. %.
You can always see the description in the message, “Gray bought XX Bitcoin from the market.” In fact, this is calculated based on its published trust data. Grayscale’s trust products currently accept cash contributions and in-kind (such as BTC) contributions.
Take BTC as an example. In the cash contribution model, investors submit USD assets to Grayscale, and Grayscale hands the assets to an authorized broker, then buys BTC in the spot market and deposits it in the cold wallet of the custodian Coinbase , And at the same time issue GBTC equivalent bitcoin trust shares to investors.
The contribution in kind does not involve buying in the spot market. Investors only need to hand over the BTC to Grayscale, and Grayscale deposits the BTC in Coinbase custody and issues GBTC. According to Grayscale’s 2019 third quarter report, in-kind contributions accounted for 79% and cash contributions accounted for 21%.
This mode of operation is similar to the gold trust fund. Some gold producers consign physical gold to fund companies, and then relying on the physical gold, the fund companies publicly issue fund shares on the exchange and trade in the secondary market. Investors who buy gold funds can freely redeem physical gold during the duration of the fund. Grayscale is different. Since October 28, 2014, Grayscale Bitcoin Trust has suspended its redemption mechanism and currently does not allow redemption of shares. In the future, the trust sponsor will decide on its own and after obtaining regulatory approval from the SEC, a redemption mechanism may be set up.
It appears that Grayscale has no intention to submit a redemption plan to the SEC. This means that Grayscale’s current management of assets such as BTC and ETH is equivalent to “only in but not out”. However, GBTC, ETHE and other stocks issued by Grayscale through “mapping” can enter the secondary market of U.S. securities trading after the closed period, and retail investors can also invest.
According to the US SEC “Rule 144”, after investors get GBTC and other stocks from Grayscale, they need to go through a certain period of closure before they can enter the secondary market. Among them, the closed period of GBTC and ETHE reported to the SEC is 6 months, and other trust products are 12 months. This is equivalent to a rigid “lock position”.
Therefore, some analysts believe that as Grayscale currently has no redemption mechanism and related assets are in a closed period before entering the secondary market, the risk of Grayscale’s short-term hitting is low, but this does not mean that Grayscale will Always hold these assets, if crypto assets such as BTC plummet, variables will follow.
Positive premium brings gold attracting power
According to Grayscale’s 2020 Q3 report, institutional investors accounted for 81% of investors who subscribed to its share of trust products, including crypto asset lending companies BlockFi, Three Arrows Capital, etc.; in addition, individual qualified investors accounted for about 8% %, family offices accounted for 8%, and retirement account funds accounted for 2%. In terms of the geographical distribution of investors, 43% of capital inflows come from US investors, and 57% of capital inflows come from offshore investors.
Why are more than tens of billions of dollars of assets keen to flow into Grayscale? Especially behind the role of institutional investors as the main force, are these shrewd capital really believers in encrypted assets?
On December 3, Grayscale held an investor conference. At the conference, Michael Saylo, CEO of the global BI software giant Micro Strategy, said that many people did not realize that in the next 5 years, holding only cash will degrade 10% to 15% of wealth, and cryptocurrency is a safe haven. Micro Strategy is the first listed company to use BTC as its capital allocation. In addition to thinking that crypto assets have anti-inflation properties, Michael Saylo also compared stocks and gold. He believes that stock returns are limited, and gold production is increasing every year. Highly manipulated by the bank. “In the next decade, cryptocurrency will be dominated by institutions.”
Obviously, it is naive to talk about faith in front of capital, and profit is the focus of their consideration. In recent years, the price of GBTC in the secondary market of US stocks has been at a positive premium over BTC, which means there is room for arbitrage.
According to statistics, the highest premium rate of GBTC reached 132%, and the average premium rate over the past 5 years was 38%. According to data from QKL123, the GBTC premium rate is still fluctuating around 20% recently. On December 3, the premium rate exceeded 30%.
Simply put, GBTC in the US stock market has long been higher than the price of BTC. For some investors who are worried about regulatory risks and financial security, buying GBTC in the compliance market is a better choice. The resulting higher premium rate continues to attract wealth owners who pursue investment returns.
The most basic arbitrage method is for investors to buy gray-scale GBTC shares with cash or Bitcoin through conventional means. After the closed period, you can choose a suitable opportunity to sell in the secondary market of US stocks and obtain good profits.
In the eyes of smart capitalists, there are more advanced gameplay. Some institutional investors first borrowed BTC from the lending platform, and then replaced it with GBTC through gray scale. After profitable sale in the secondary market, they bought BTC and returned it to the lending platform to complete arbitrage. Obviously, this approach can improve the utilization of funds. Shown on the gray book, its holdings have increased again.
In theory, as long as assets such as GBTC and ETHE always have a premium, Grayscale qualified investors will have the motivation to increase their holdings, but the premise is that there must be sufficient funds and liquidity in the US OTC market to provide purchases for assets such as GBTC plate. If the market plummets, the prices of GBTC and other assets will also fall, investors no longer have the willingness to buy GBTC, and grayscale’s holdings may stop. When there is not enough funds willing to accept GBTC in the secondary market, it may have a negative premium compared to BTC, and Grayscale is more likely to reduce its holdings of BTC.
It is not difficult to see that behind the “buy, buy and buy” of capital and Grayscale, the most important thing is still the trend of encrypted assets such as BTC. Once the signs are wrong, the gold owner behind Grayscale may be the first to act as a hitter in the US OTC market. In this case, it is unrealistic to expect Grayscale to continue to act as the savior.
Currently, under the effect of grayscale holdings, the prices of crypto assets such as BTC, ETH, LTC, etc. have all gone up. The reason is that on the one hand, Grayscale has provided a large number of buying orders for the market, on the other hand, as a compliance agency regulated by the SEC, it has also brought capital injection into the traditional market. Compliance continues to introduce new funds to the crypto market, which is a more important meaning for Grayscale to this emerging market.
Compared with traditional assets such as stocks and gold, crypto assets such as BTC have long been criticized by the mainstream financial world due to factors such as higher volatility and uncertain value. Some people think it is a scam, others call it digital gold.
Until January this year, Grayscale Bitcoin Trust officially became a company reporting to the SEC, and the crypto asset industry was re-examined by the traditional capital market. The data will not lie. The amount of funds flowing into Grayscale in the first three quarters of this year accounted for 68% of its historical accumulated funds, and institutions have begun to aggressively enter the world of encrypted assets.
Industry insiders believe that the existence of Grayscale makes it unnecessary for large institutions and qualified investors who want to enter the crypto asset industry to purchase, transfer and store digital assets by themselves, nor to manage other personal accounts, wallets and private keys. All assets are stored cold in an encrypted wallet, which is more secure, and will not suffer asset losses due to storage in a centralized exchange that is subject to supervision and runaway risks. In addition, these investors can trade in a more compliant and regulated market, largely avoiding the risks of black box manipulation.
In addition to Grayscale, financial technology companies such as PayPal and Square are allowed to provide support for BTC and other encrypted assets under the regulatory framework, which has also promoted the price growth of “coin assets”.
According to analysis by Pantera Capital, a hedge fund that invests in blockchain and digital currency, most of the new BTC supply in the daily market has been bought by customers of online payment giant PayPal and the US version of Alipay Square. CoinGecko data shows that since PayPal launched its BTC business, the trading volume of Paxos, a compliant stablecoin issuer that it cooperates with, has more than tripled.
In the more than 10 years of development of the encryption industry, regulation and compliance have always been like the sword of Damocles. While the practitioners are walking on thin ice, they also show an embrace. Trading platforms such as Binance, OKEx, and Huobi continue to seek compliance operations around the world, and institutions such as Grayscale and PayPal have also jointly accelerated the compliance process of the encryption industry.
Recently, Grayscale is placing bitcoin advertisements on a large scale in mainstream American media. Gray’s managing director Michael Sonnenshein said that after the outbreak, investors’ participation in Bitcoin investment has increased substantially. Quantitative easing policies are being implemented in the global currency field, coupled with the introduction of a broader portfolio of financial markets, investors’ willingness to invest in Bitcoin is increasing.