Among all the Bitcoin evangelists, Grayscale is still the best!

Author | Hash Party - LucyCheng

Article word count: about 7100 words Reading time: about 6 minutes

At the end of last month, on Thanksgiving Day, the cryptocurrency market encountered a big surprise. Bitcoin began to plummet from its highs on the morning of the 26th, and within 24 hours, the price dropped from $18,913 to below $16,500. The huge drop once caused panic in the market, and some investors repeatedly called out Grayscale, which had been buying like crazy this year, and loudly said, "I miss him on the first day of the Thanksgiving holiday." And before Christmas this month, some people have begun to wonder whether the same thousand-dollar plunge will happen again.

With its lock-up mode that only allows inflows but no outflows, Grayscale has gradually played the role of the savior of the crypto market in recent months, and many investors regard its every move as an indicator of market operations. Coincidentally, Grayscale's crazy increase in holdings seems to always be able to pull Bitcoin's correction back to the upward channel. Just in the past few days, after Grayscale has been increasing its holdings by tens of thousands of BTC per week for several consecutive months, Bitcoin finally re-entered the $20,000 mark on the evening of the 16th, and continued to break through the $21,000 mark eight hours later, constantly setting new historical highs.

Screenshot from: Twitter

After three years, Bitcoin ushered in a bull market again, and the crypto market was instantly boiling. Even the bigwigs from all walks of life could not hold back and stood up to cheer for Bitcoin. MicroStrategy CEO praised Bitcoin as the best reserve asset; Scott Minerd, chief investment officer of Wall Street giant Guggenheim, claimed that Bitcoin should be worth $400,000 per coin; billionaire hedge investor Alan Howard was more direct and immediately announced that he would invest $1 billion in BTC and ETH before the end of the year.

However, this kind of crazy calling for Bitcoin is not uncommon. Back when the price of Bitcoin was less than $1 and even the exchange rate against legal currency had not been established, a large number of cryptography enthusiasts spontaneously promoted it.

Crypto enthusiasts who spend their own money and time to promote

• Hal Finney

Hal Finney was the first miner to mine Bitcoin besides Satoshi Nakamoto, the recipient of the first Bitcoin transaction, and the first person to publicly mention Bitcoin on social media. On January 11, 2009, just two days after the Genesis Block was produced, Hal Finney announced on Twitter that he was running the Bitcoin client, and subsequently initiated discussions on improving the project many times. Prior to this, this cryptographer had a strong interest in Bitcoin. Not only did he give great encouragement to Satoshi Nakamoto when the white paper was first released, he also specifically invited two technical experts, Wei Dai and Nick Szabo, to discuss the feasibility of the system.

Hal Finney was almost the first person on the Internet to publicly mention Bitcoin (screenshot from: Twitter)

• Gavin Andersen

Like Hal Finney, Gavin Andersen also started to contact Satoshi Nakamoto very early. He was once the "closest person to the altar" in the field and took on the heavy responsibility of successor for a period of time after Satoshi Nakamoto disappeared. At that time, out of appreciation for Gavin, Satoshi Nakamoto assigned part of the project maintenance tasks to Gavin in early 2010. And Gavin lived up to expectations and contracted almost most of the development tasks in the early stage of Bitcoin development.

In addition, he also used the thousands of bitcoins he mined to promote free trials in the community. In June 2010, Gavin built a project called freebitcoins, which allowed every user who browsed the website to receive a 5 BTC reward for free. At the time, this simple and crude promotional method attracted many new users to come in and learn more, and also received multiple donations from other early participants.

Gavin Andresen posted on the Bitcointalk forum on June 11, 2010, and Satoshi replied seven days later

• Andreas M. Antonopoulos

However, Gavin later turned to support BCH and cleared the name of Craig Wright, which was difficult for the community to accept. Now his influence in the circle is not as great as before. In the hearts of a large number of Bitcoin believers, the real boss is Andreas M. Antonopoulos, who is ranked first in the global cryptocurrency figure rankings.

Since 2011, he has written the most classic book in the field, "Mastering Bitcoin", operated the most subscribed and viewed YouTube channel in the industry, and traveled around the world to give dozens of promotional speeches. Roger Ver praised him as the most powerful Bitcoin speaker; some early Bitcoin holders regarded him as the source of their faith, revealing that if Andreas had not been there, they would not have bought Bitcoin, and there would not have been stories of getting rich and hoarding Bitcoin later.

※In addition to the well-known "Mastering Bitcoin", Andreas M. Antonopoulos later wrote "Mastering Ethereum", "Money Internet" and other books

• Roger Ver

The promotional methods of technical experts such as Gavin, Andreas, and Wu Jihan, who gave away Bitcoins, released explanatory videos, and translated project white papers, had a relatively limited influence, and the scope of their dissemination was mostly confined to the geek field; later, the first person to bring the strength of Bitcoin to the world should be angel investor Roger Ver.

This evangelist, who is praised by insiders as "Bitcoin Jesus", has done everything he can to promote Bitcoin, and has almost exhausted his lifelong connections and resources. From 2011 to 2014, he first spent $100,000 to place Bitcoin advertisements on more than 100 TV stations across the United States, and then established the shopping website Bitcoinstore, which can only be paid with Bitcoin. At the same time, he also added support for Bitcoin payments to his own electronic equipment company Memorydealers, constantly creating application scenarios for Bitcoin. Even though Bitcoin fell into a low period due to the Mt.Gox hacking incident, Roger still did not give up. Not only did he actively invite friends to help Mt.Gox through the crisis, he even bet $10,000 to launch a 100-fold bet on skeptics, trying his best to boost market confidence.

※Roger Ver made a bet on Youtube to all those who doubted BTC, saying that Bitcoin will grow more than 100 times in the next two years, surpassing gold, silver and even the US stock market.

• Jed McCaleb

There are many people who have tried to create application scenarios for Bitcoin and establish trading and circulation platforms, but the most famous and influential one is Mt.Gox, which once made community members love and hate it. Everyone is familiar with the CEO of the exchange, Mark Karpeles, but it was not him who initially established Mt.Gox, but Jed McCaled, the founder of eDonkey.

In 2010, Jed accidentally came across the Bitcoin white paper and was very interested in the distributed technology solutions in it. After a deep understanding, he found that the industry lacked a very important link - the trading mechanism, and then immediately converted his early "Magic: The Gathering" game card trading website into a Bitcoin exchange, which we later knew as Mt.Gox. However, operating a trading platform was not exciting enough for Jed. In order to pursue something more challenging, he sold Mt.Gox to Mark Karpeles in 2011 and founded the blockchain project Ripple a year later.

The Bitcoin Foundation, a former semi-official representative organization

Six founding members of the Bitcoin Foundation (Source: Github)

With the purpose of standardizing, protecting and promoting open source protocols, they launched a global promotion of Bitcoin. According to data from BitMEX, the Bitcoin Foundation raised more than 27,873 BTC in operating funds through its founding members and hundreds of subsequent members just two years after its establishment. With this money and the connections of its members, the Foundation independently supported most of the development funds for the project and promoted the project during the years when Bitcoin was unknown.

The Bitcoin Foundation's mission (Source: The Bitcoin Foundation)

Unlike the previous unorganized and widespread promotion methods of cryptography enthusiasts and investors, the Foundation tried to start from both the masses and the government. On the one hand, it hired professional teams such as the Audience to launch social media campaigns, and on the other hand, it hired federal lobbying and strategic consulting firm Thorsen French Agency to introduce Bitcoin to officials on Capitol Hill in the United States; it spared no effort to convey the benefits of using Bitcoin to the world.

At that time, the Bitcoin Foundation almost regarded itself as the official spokesperson for the project. It not only held dialogues with the U.S. federal government and accepted summonses from relevant regulatory authorities, but also responded to questions from all sides. Whenever there was unfavorable news in the field, the Foundation would immediately come out to explain and appease the community while actively maintaining the public image of Bitcoin.

But those were all past glories. As the problems of internal management chaos in the organization gradually came to light, the Bitcoin Foundation was surrounded by only doubts and condemnations. In 2014, an anonymous post on the Reddit community revealed the role of the Bitcoin Foundation in the Mt. Gox theft. The post said that the Foundation had long known that there was a huge loss of Bitcoin after the theft of Mt. Gox, but chose to conceal it, and tried to help the exchange fill the funding gap in various ways over the next three years, which indirectly caused the Mt. Gox tragedy where users lost all their money.

The anonymous accusation put the foundation in a whirlpool of public opinion, and the organization's transparency was repeatedly questioned by the community. To make matters worse, the foundation was later hit by scandals such as Vice President Charlie Shrem's involvement in money laundering, bankruptcy, and massive layoffs, which completely destroyed the Bitcoin Foundation's already precarious reputation.

In order to regain public trust, the organization actively reorganized in 2015, trying to change its operational strategy and focus on the development of valuable projects; but by then the foundation had already lost its community influence and was unable to recover, and eventually gradually became an insignificant shell organization. However, the most ironic thing is that the original founding members have already gone their separate ways. Those who were dissatisfied with the foundation's actions have resigned one after another, those who quit have turned to preach other projects, and those who were involved in scandals have either been arrested or sentenced.

The dark zone that inadvertently boosts Bitcoin activity

Silk Road official website historical screenshots

In May 2013, the Silk Road server was seized and shut down by the U.S. National Security Agency. The founder Ross Ulbricht was arrested May later, and more than 100,000 bitcoins in related wallets were seized. In an instant, the subtle connection between Bitcoin and black transactions was exposed.

If people only knew about the Bitcoin payment experiences of Lazlos who used 10,000 BTC to buy pizza, and the newlyweds Austin and Beccy who tried to live on BTC for 90 days, as interesting anecdotes after dinner, then the Silk Road case really made everyone realize the potential of Bitcoin in serving as a payment tool and circulating currency.

According to the FBI investigation, in the two years before Silk Road was shut down, the website traded about 9.5 million BTC, accounting for more than 80% of the total Bitcoin output at the time. On the other hand, transactions related to the dark web accounted for almost half of all Bitcoin transactions during this period.

There is no need for lobbying by political teams. The large-scale circulation of Bitcoin in the black market is enough to attract the attention of governments around the world and force them to face up to this emerging field. Among them, policies banning the use of Bitcoin in Thailand, Russia and other countries were also promulgated after this.

Bitcoin price changes from 2013 to 2016 (data source: Coinmarketcap)

Although the exposure of Silk Road has increased the government's intervention in the Bitcoin market to a certain extent, Bitcoin has continued to roam smoothly in various darknet markets in the following years due to its decentralization and anonymity, and continued to grow and develop in the black market sector. Coincidentally, the iteration and decline of the leading black market at that time more or less caused the price of Bitcoin to move in tandem.

After Silk Road 1.0 was forced offline by the FBI in October 2013, the price of Bitcoin quickly fell from $135 to below $100 in just one week, with a cumulative decline of more than 25.9%. A month later, with the re-launch of Silk Road 2.0, the price of Bitcoin began to soar, increasing sixfold to a historical high of $1,200 within the month. Coincidentally, around the time when Silk Road 2.0 was blocked in November 2014 and the large black market Agora was closed for security reasons in August 2015, Bitcoin also showed a clear downward trend.

The major darknet markets were shut down one after another, and the super-large exchange Mt.Gox fell overnight, and the Bitcoin market fell into a long cold winter from 2014 to 2015. It was not until around November 2015 that Bitcoin showed signs of recovery, with the help of another group of criminals, and the price once again broke through the $500 mark, doubling within the month; and this time, the notorious international Ponzi scheme 3M Global brought about the long-awaited surge in Bitcoin prices.

MMM Global's catalog of tutorials for buying Bitcoin, covering everything from setting up wallet addresses to introductions to related exchanges

Following the brainwashing propaganda method of its predecessor, the fraud company MMM, which boasted "low investment, super high returns", and innovatively using Bitcoin as a means of payment, 3M Global has been frantically making money in more than 100 developing countries in Asia and Africa since 2011. In 2015, the company officially entered the Chinese market and quickly established a huge network in China through common pyramid selling methods such as recruiting people and developing offline businesses. In less than a year, it defrauded at least tens of billions of dollars from Chinese investors.

Baidu search index for Bitcoin and MMM in 2015

Although the scam did not last long and died out due to lack of funds, the hot pyramid scheme of 3M at that time indirectly set off a small wave of cryptocurrency investment in China. Even more magical is that the information on the fraud company's website that taught the purchase and transaction process of Bitcoin inadvertently made more Chinese investment and speculation enthusiasts begin to know and use Bitcoin.

As time goes on to 2017, with the increasing attention paid to the cryptocurrency field by the mainstream market and the improvement of social awareness of the latter, the use of Bitcoin in the black market, financial scams and other fields has dropped significantly, and criminals have turned to other cryptocurrencies with stronger privacy performance. However, before the two sides drifted apart, this group of criminals who constantly challenged the bottom line of the law once again brought Bitcoin to global popularity.

The interface of the ransomware WannaCry displayed on the computer screen

On May 12, 2017, the ransomware Wannacry exploited a vulnerability in the Windows operating system's port 445 and began to wreak havoc in more than 150 countries around the world, infecting at least 300,000 computers and demanding Bitcoin from victims to redeem their computer data. On the evening of June 27, a new round of worm virus Peyta launched another attack, not only threatening to completely destroy the victim's hard drive, but also arrogantly raising the ransom from less than 1 BTC to 100 BTC.

The two waves of virus attacks involved a wide range of people, including Disney Studios, large banks in Europe and Russia, power systems, communication systems, and airports. As the ransomware continued to spread around the world for more than two months, Bitcoin, as a method of ransom payment, has become increasingly popular, frequently appearing in mainstream media and becoming a hot search term on the Internet. At the same time, domestic and foreign market attention continued to heat up. Within two months of the incident, the price rose from $1,534 to a historical high of $2,959, a cumulative increase of more than 69%.

Although Bitcoin has almost gotten rid of the labels of criminal tools and dark gold, its "criminal history" entangled with the dark web, financial fraud and other lawless places cannot be denied. In a sense, the black market is the starting point of the Bitcoin industry and one of the powerful assists in the history of Bitcoin development that cannot be ignored.

Grayscale, the Bitcoin whale that is seen as an operation signal by investors

Data source: Coinmarketcap

With this beginning, more industry leaders and large institutions are ready to pave the way for Bitcoin to enter the traditional financial market. For example, the Winklevoss brothers insisted on applying to the US Securities and Exchange Commission for a Bitcoin ETF no matter how many times they were rejected, Coinbase attaches great importance to operational compliance and institutional investors, Bakkt launched physical delivery Bitcoin futures contracts, and financial technology companies Paypal and Square purchased a large number of Bitcoins and provided users with Bitcoin purchase services... However, the achievements of these market promoters are not as eye-catching as Grayscale, which has recently become popular.

Grayscale Bitcoin Trust holdings from November to December 2020 (data source: Bishijie)

Regardless of what Grayscale has planned, its recent frantic support for Bitcoin is hard to ignore. As of December 16, 2020, Grayscale's total asset management scale reached US$13.1 billion, of which BTC trust holdings accounted for about 3% of the total circulation of Bitcoin, at 565,633.39 coins, and continued to increase at a rate of about 1% per day.

In fact, Grayscale already held more than 200,000 bitcoins at the beginning of this year, and increased its holdings in the middle of the year when the block reward was halved. In the past six months, the amount of bitcoins purchased by Grayscale was higher than the amount mined in the same period; but at that time, no one took it seriously, until Grayscale started to buy and buy and increase its holdings in October, which gradually attracted market attention.

I don’t know when it started, but some investors have regarded Grayscale’s working and leaving times as important signals for Bitcoin price fluctuations and buying and selling; jokes such as “Grayscale leaves work, the air force attacks; Grayscale comes to work, the bulls succeed” are widely circulated in the circle. The amazing thing is that Grayscale’s daily increase/reduction scale seems to be subtly linked to the rise and fall of Bitcoin prices.

The relationship between the increase/decrease of Grayscale BTC Trust and the currency price on that day (Image source: PANews)

According to data from Grayscale and Coinmarketcap, on November 30, when the price of Bitcoin hit an all-time high, Grayscale's assets expanded by 13.34%, equivalent to US$1.439 billion; and on November 26, when Bitcoin hit a short-term low, Grayscale's asset management scale decreased by approximately 17.66%, equivalent to a reduction of US$2.151 billion.

Although these evidences are not sufficient to show that there is a causal relationship between the two; however, Grayscale's non-redemption perpetual trust mechanism that only allows money to flow in but not out, and its operating model of transferring selling pressure to the U.S. stock market, are equivalent to providing strong buying power for the Bitcoin market, and have an implicit role in boosting market confidence that cannot be ignored.

※DCG (Digital Currency Group) has five subsidiaries and has directly invested in more than 160 cryptocurrency and blockchain-related companies (Source: DCG official website)

Whether it is out of optimism about Bitcoin or simply wanting to make a profit; Grayscale has made seven years of efforts to get to where it is today. Since its establishment in 2013, this company, backed by the world's largest blockchain venture capital DCG, has been committed to promoting the development of Bitcoin financial derivatives; over the years, Grayscale Capital has repeatedly negotiated with government regulators to find a feasible path to compliance.

After a long period of planning, Grayscale's BTC Trust Fund, BCH Trust Fund, LTC Trust Fund, ETH Trust Fund and other products have now been approved by the U.S. Financial Industry Regulatory Authority FINRA and the Securities and Exchange Commission SEC. As he has taken this compliance path facing a larger market, a large number of institutional investors who see arbitrage opportunities behind the products have rushed into the market; more than 86% of the huge amount of funds currently flowing into Grayscale comes from institutional investors, an increase of 30 percentage points compared to about 66% in 2019.

GBTC holdings of some investment institutions (data source: fintel, 2020/11/30)

The participation of institutional investors has brought a steady stream of funds to Grayscale and the Bitcoin market. According to a report by JPMorgan Chase, nearly $2 billion has flowed into Grayscale's BTC trust fund since October; while the gold market, which is also a safe-haven asset, has seen more than $7 billion flow out of its ETF trading market. Not only JPMorgan Chase, but a report released by Deutsche Bank last month also reached a similar conclusion, that the enthusiasm for gold investment has declined, and institutional investors are turning to the Bitcoin market.

Screenshot from: Grayscale’s DropGold ad video

This market situation has directly elevated the previous discussion of Bitcoin as digital gold to the level of Bitcoin replacing gold. Although analysts have given sufficient reasons for gold's poor performance, saying that the progress of COVID-19 vaccine research and development has reduced the market's demand for risk aversion; but the market is still very vocal about Bitcoin being a substitute for gold. Celebrities such as Ray Dalio, CEO of investment management group BlackRock, chairman of Bridgewater Foundation, and Jim Cramer, host of CNBC, have joined the army of support. Some institutions under the bigwigs have even directly given investment plans to express their support for Bitcoin with actions.

The debate between gold lovers and Bitcoin investors continues, and the #DropGold# campaign is not the only reason for the intensification of the conflict between the two sides. This investment slogan called "abandon gold" was launched by Grayscale in May 2019. In order to convince more investors to allocate Bitcoin assets, Grayscale established a related website http://dropgold.com and published a large number of analytical reports on the possibility that Bitcoin is replacing gold.

Recently, taking advantage of the rising momentum of Bitcoin, Grayscale has spent a huge amount of money to place DropGold ads on all major TV stations in the United States. Unlike last year's market attitude that no one cared about, this year's anti-gold slogan has attracted discussions from all parties. Whether there are many voices of approval or opposition, Bitcoin has been elevated to a status almost equal to gold by investors; even Grayscale CEO Barry Silbert said that the advertising fee is worth it.

With the right time, right place and right people, Grayscale is gradually becoming a deity

Grayscale, which has been developing cryptocurrency financial derivatives for many years, has just met everyone's expectations. In an environment that has been shrouded in the shadow of a bear market for a long time, it has become a shot in the arm to boost market confidence and provide a reason for investors who have been silent for a long time to enter the market. In addition, the company's recent waves of #DropGold# publicity and promotion activities have continuously attracted attention and discussion from mainstream funds, and the value of Bitcoin has risen accordingly.

Screenshot from: Twitter

This gradually recovering digital dragon can achieve fame and fortune at the end of 2020, thanks to Grayscale. Some retail investors even regard the latter as the savior of Bitcoin. Of course, there is a bit of a joke here. Looking deeper, Grayscale's actions and Bitcoin prices have at most a weak correlation. However, Bitcoin is booming now. In this bull market atmosphere, who would care whether Grayscale made Bitcoin or Bitcoin just chose Grayscale? As Grayscale CEO Barry Silbert said, just do it!