In-depth data | Grayscale Asset Management’s scale has increased 20 times in one year. What impact will the continuous buying have on the market?

Analyst | Carol | PANews

*Audrey also contributed to this article

Recently, Bitcoin broke through $19,800 to hit a record high. According to CoinMarketCap, as of December 6, Bitcoin's annual increase has reached 168.68%, and the increase since October alone is as high as 82.17%. Regarding the motivation behind this round of bull market, the general view in the market is that the continuous inflow of funds by institutions has driven the continuous rise in the price of the currency. Among them, Grayscale is a large institution that has attracted much attention.

Grayscale is one of the world's largest digital currency asset management companies, backed by Digital Currency Group (DCG), and was founded in 2013. By issuing "paper gold" such as GBTC, ETHE, and LECN in the secondary market of US stocks, Grayscale has successfully connected the digital currency market and the traditional financial market, providing a platform for institutions and qualified investors to invest in digital currency assets in compliance with regulations. Coupled with the non-redeemable mechanism set by Grayscale and the 6-month lock-up period, it has gradually become a powerful bullish force in the market.

According to the quarterly investment report released by Grayscale, Grayscale's asset management scale has expanded from about US$607 million in the fourth quarter of last year to about US$12.572 billion recently, a full 20 times increase. Among them, what are the changes in the asset allocation of Grayscale's various products? Is the continued purchase of Bitcoin the ultimate driving force behind this round of price increases? Under the dual withdrawal model, how big is the arbitrage space for Grayscale funds? PAData will use Grayscale's daily investment data to explain in detail the changes in the asset management scale of Grayscale's various products in the past six months and its correlation with the market.

Most of the 10 trust fund products were launched in 2018

No new products in the past two years

At present, Grayscale has launched a total of 10 investment products, of which 9 are single-asset trust funds and 1 is a multi-asset fund. BTC Trust is Grayscale's earliest product, which was launched on September 25, 2013. After that, it was not until 2017 that Grayscale launched ETC Trust, ZEC Trust and ETH Trust. In 2018, as the global digital currency market entered its first development peak, Grayscale not only launched the first multi-asset fund Digital Large Cap Fund, but also launched 5 single-asset funds including BCH, LTC, XRP, etc. However, in the past two years, Grayscale has not launched any new investment products.

From the perspective of the minimum investment threshold, except for BTC Trust and Digital Large Cap Fund, which require more than US$50,000, the minimum investment amount for the other eight investment products is US$25,000.

Grayscale earns revenue by charging management fees based on the currency. Currently, the annual management fee for BTC Trust is 2%, the annual management fee for ETC Trust and Digital Large Cap Fund is 3%, and the annual management fee for other products is 2.5%. These management fees will be deducted directly from the investor's digital currency share.

From the perspective of product model, Grayscale adopts a non-redeemable perpetual trust model. After investors deposit funds through fiat funds or physical digital currency, they will receive corresponding trust shares. For example, the trust share corresponding to Bitcoin is GBTC. Investors can only withdraw funds by trading trust shares in the secondary market of U.S. stocks after the 6-month lock-up period ends.

Total assets exceeded US$12.5 billion

Recent changes

PAData has compiled Grayscale's investment data since June this year. The data shows that in the past six months, Grayscale's asset management scale has expanded from approximately US$3.867 billion on June 1 to approximately US$12.572 billion on December 4, an increase of 225%. Among them, with the surge in Bitcoin prices since October, Grayscale's asset management scale has also grown rapidly. From October 1 to December 4, Grayscale's total holdings increased by 114.25%, and after November, the asset management scale has basically stabilized at more than US$10 billion.

Judging from the changes in asset management scale, since June, Grayscale's asset management scale has expanded by an average of about 0.95% per day, equivalent to a daily increase of approximately US$64.8948 million.

Especially after October, Grayscale's daily increase/decrease in holdings was large, with 7 days exceeding 5%. It is worth noting that on November 30, after the price of Bitcoin hit a record high, Grayscale's asset management scale expanded by 13.34% on that day, equivalent to about US$1.439 billion. On November 26, when Bitcoin was at a short-term low, according to the average estimate of the asset management scale for that month, Grayscale's asset management scale on that day may have decreased by 17.66%, equivalent to a reduction of about US$2.151 billion.

BTC trust shares account for more than 80%

ETH trust share has increased significantly

BTC Trust is Grayscale's earliest product and has always been its most important product. Since June, the asset management scale of Grayscale BTC Trust has expanded from approximately US$3.403 billion on June 1 to approximately US$10.469 billion on December 4, an increase of approximately 207.66%. However, the proportion of BTC Trust's total holdings in Grayscale's total holdings has slightly decreased, from 88.01% on June 1 to 83.27% on December 4, a decrease of nearly 5 percentage points.

ETH is another asset that has attracted much attention this year. The asset management scale of Grayscale ETH Trust has expanded from approximately US$331 million on June 1 to approximately US$1.677 billion on December 4, an increase of 406.16%, equivalent to a five-fold increase. Moreover, the holdings of ETH Trust accounted for an increasing trend in Grayscale's total holdings, from 8.57% on June 1 to 13.34% on December 4, an increase of nearly 5 percentage points.

Among Grayscale's multiple investment products, the multi-asset fund Digital Large Cap Fund is also worth paying attention to. According to Grayscale's product introduction, the fund aims to seek large digital assets that account for 70% of the entire digital asset market. The current targets include BTC, ETH, XRP, BCH and LTC. Each share includes 0.00047320 BTC, 0.00273567 ETH, 0.00047615 BCH, 1.09619609 XRP and 0.00154624 LTC.

Since June, the asset management scale of Digital Large Cap Fund has expanded from US$34.1 million to US$171 million, an increase of about 402.05%, which is comparable to the increase in the asset management scale of ETH Trust. The fund's total holdings have also increased from 0.88% to 1.36%, making it an investment product second only to BTC Trust and ETH Trust and higher than other single-currency trusts.

Changes in trust fund size are weakly correlated with the currency price on that day

In this round of bull market, many people believe that the driving force behind the rise comes from the continuous inflow of funds from large institutions such as Grayscale. Judging from the data, what impact does Grayscale's increase/reduction in holdings have on the secondary market?

PAData calculated the Pearson coefficient between the daily increase/decrease of Grayscale BTC Trust and the coin price on that day, the average coin price of the 7 days before and after (excluding that day), and the average coin price of the 3 days before and after (excluding that day) to observe the correlation between the two.

According to statistics, since June this year, overall, there is no correlation between the increase/decrease of Grayscale BTC Trust's holdings and the coin price. However, some months show a certain weak correlation, especially the increase/decrease of BTC Trust has a certain weak impact on the coin price on the day. For example, in July, August and December this year, the correlation coefficient between the increase/decrease of BTC Trust's holdings and the coin price on the day reached about 0.5, and reached 0.63 in December, which means that the BTC price is likely to rise on the day when BTC Trust increases its holdings, and vice versa, the BTC price is likely to fall on the day when BTC Trust reduces its holdings.

But this does not mean that there is a causal relationship between the two, it just means that there is a correlation in appearance.

In addition to being slightly correlated with the price of the currency on that day, the increase/decrease of BTC Trust's holdings is also slightly correlated with the price of the currency in the following week. For example, in September and December, the correlation coefficient between the increase/decrease of BTC Trust's holdings and the average price of the currency in the following 3 days and the average price of the currency in the following 7 days also reached about 0.6, and in December, the correlation with the average price of the currency in the following 3 days reached -0.77, which means that the price of BTC is likely to fall within the three days after BTC Trust increases its holdings, and conversely, the price of BTC is likely to rise within the three days after BTC Trust reduces its holdings. In September, there was a slightly strong positive correlation between the increase/decrease of BTC Trust's holdings and the average price of the currency in the following 3 days and the average price of the currency in the following 7 days, that is, the increase in holdings is likely to occur at the same time as the increase in the currency price.

The correlation between the increase/decrease of ETH Trust's holdings and the coin price is similar. Overall, there is no correlation between the increase/decrease of Grayscale ETH Trust's holdings and the coin price, but some months show a certain weak correlation, and the increase/decrease of the trust's asset management scale is also slightly related to the coin price on the day and in the future.

For example, in June, July, August and December, the correlation coefficient between the increase/decrease of ETH Trust and the price of the currency on that day reached about 0.5, which means that the price of ETH is likely to rise on the day when ETH Trust increases its holdings, and vice versa. In addition, in July, September and December, the increase/decrease of ETH Trust is also weakly correlated with the average price of the currency in the next three days and the average price of the currency in the next seven days. In December, it is a negative weak correlation, that is, the increase in holdings may occur at the same time as the price drop.

Although the changes in Grayscale's asset management scale are only weakly correlated with market changes, the continued layout of large institutional funds represented by Grayscale has an implicit role in boosting market confidence that cannot be ignored.

LTC and BCH OTC premium is high

Since Grayscale has set up a non-redeemable trust model, investors who want to withdraw funds and make profits can only do so by trading shares in the secondary market of U.S. stocks. Grayscale currently has shares of 6 products that can be traded in the secondary market, including GBTC (BTC Trust), BCHG (BCH Trust), ETHE (ETH Trust), ETCG (ETC Trust), LECN (LTC Trust) and GDLC (Digital Large Cap Fund).

PAData calculated the premium rate between each share price and the over-the-counter trading price. According to statistics, except for the ETC Trust share premium which was temporarily lower than 0, the premium space of other investment products was relatively large.

Among them, the share premium of BTC Trust is the lowest among all products, about 27.61%, and the average premium in the past six months is about 17.17%. ETH Trust has a higher premium this year, with the current premium of about 124.20%, and once reached 949.06% in the middle of the year, and the average premium rate for the whole year is as high as 208.81%. The multi-asset fund Digital Large Cap Fund also performed well this year. The premium is currently about 61.22%, and it was once higher than 200% from August to October. The average premium rate for the whole year has also reached 110.64%.

Also worth noting is the premium performance of LTC Trust and BCH Trust this year. According to the data disclosed by Grayscale, the average premium rate of LTC Trust shares throughout the year is as high as 948.11%, the current premium is about 2677.09%, and the highest premium in the past six months is about 5873.72%. The premium of BCH Trust shares is also abnormally high. According to statistics, its average premium rate throughout the year is about 468.16%, the current premium is about 1252.40%, and the highest premium throughout the year is about 1331.99%.

After further observation of the trading situation on OTCQX, it can be found that the high OTC price that caused the extremely high premium rate has only a small amount of trading volume, which means that this extremely high return is somewhat accidental. In addition, the shares of LTC Trust and BCH Trust were just listed on August 18. There may be large fluctuations in the early stage of listing, but they may slowly return to market consensus. The premium of LTC Trust has been significantly adjusted recently.