The structural opportunity "Grayscale Bull" has arrived, is it too late to get on board now?

In the early morning of November 18, 2020, Bitcoin broke through 17,500 USDT, setting a new high since December 21, 2017. Interestingly, in the entire history of Bitcoin, the price exceeded 17,500 USDT only 7 days.

In order to better summarize and conclude the structural leap under the cyclicality of Bitcoin, Odaily Planet Daily judged this round of rise as the early stage of the "Grayscale Bull".

How is the Grayscale Bull different from the previous bull market? Who are the driving forces behind the Grayscale Bull? What is the reason why Bitcoin is more popular than gold ETFs this year? Is Bitcoin currently at a high level? Will there be a sharp retracement like in 2017? This article will answer these questions one by one.

A big grey cow is coming towards us.

In ancient Western civilization, the bull represents strength, wealth and hope, while the bear represents restraining enthusiasm, digesting oneself and rebirth. As early as the 18th century, the West chose the two species of "bull" and "bear" to represent the rise and fall of the market.

From 2017 to 2020, there have been three "bulls" and two "bears" in the crypto market. Among these three bulls, one is very big, one is very weak, and one is just beginning to show its horns; among these two bears, one is "Big Bear" and the other is "Bear II".

In 2017, Bitcoin rose from $735.3 to $19,891. This bull was fed by 1CO, so we call it the “ICO bull”.

In 2018, Bitcoin spent almost the entire year in retracement. This was the year when the “big bear” appeared.

In 2019, contract trading emerged, and both the rise and fall of Bitcoin were accelerated. We call it the "contract bull".

Looking back at history, the "Contract Bull" is still weak, and it is not difficult for "Bear II" to beat it back.

Since March 2020, Bitcoin has risen from its lowest point of about $4,000 to over $16,000, and the rise has become more and more fierce. As the bull's horns begin to show, "Bear Three" hides its body, and we gradually see the general outline of this bull - the grayscale bull.

Why is this bull market called the “Grayscale Bull”?

Grayscale currently manages $10 billion worth of cryptocurrencies. The Grayscale Bitcoin Trust (GBTC), founded in 2013, is the company's largest trust. Grayscale purchased 15,114 bitcoins (about $241 million) last week alone. As of November 15, Eastern Time, the total holdings of the Grayscale Bitcoin Trust have reached 509,581 BTC.

Odaily Planet Daily counted the relationship between GBTC's increase in holdings and BTC prices from October 19 to November 16.

As can be seen from the above figure, Grayscale's purchase volume continues to increase over time.

At the same time, from the technical chart, after BTC broke through $12,000, the resistance became greater the further it went up, but it still maintained a healthy upward trend.

Combined with the above Grayscale holdings chart, it can be seen that Grayscale played a big role in BTC's upward attack (huge buying power). The more selling orders there are from above, the greater the amount of Grayscale holdings.

Looking at the longer timeline, macro investor Dan Tapiero said that the share of Bitcoin purchased by Grayscale Trust in Bitcoin generated by mining increased from 27% in Q1 to 77% in Q3.

On October 14, Grayscale reported in its Q3 2020 financial report that it had $1.05 billion in inflows across all its products. So far this year, the figure is $2.4 billion, which is more than double the total amount raised from 2013-2019. Grayscale Bitcoin Trust had inflows of $719.3 million in the third quarter, while total Bitcoin assets under management (AUM) grew 147% in 2020.

It can be seen that compared with the previous rounds, the biggest variable in this round of increase is Grayscale's massive purchases, which added demand to the market, consolidated the "bottoming out", and withstood the "selling pressure".

In addition, we also discovered another difference between Grayscale and “previous” investors.

Dare to buy if you dare to fall, "Grayscale bulls" are not "afraid of heights"

Grayscale's investment style is somewhat special: as long as Bitcoin dares to fall, Grayscale dares to buy, and it has no "fear of heights". This is clear from the technical chart.

At the end of 2017, Bitcoin rose sharply, but the higher the price, the greater the volatility, and BTC stayed at a high level for a very short time and could not stabilize at all, which reflected the FOMO sentiment.

Compared with the high trend of BTC in 2020, BTC can be said to have been going up in "small steps" all the way. As long as there is a big selling pressure after breaking the new high, there will be a follow-up below. This makes the overall volatility of BTC at the current high level much lower than that in 2017, and the trend is relatively more stable.

As for the "contract bull" in 2019, since the trend was very weak and it did not reach $14,000, it is better not to mention it.

These are just "phenomena" summarized from the market.

The main forces of the bull market are different: from retail investors to institutions

The reason why this round of bull market is different from others is mainly because the main driving force of the previous bull market has changed. Grayscale itself is a trust company, which mainly earns management fees from trust products, and does not specialize in "cryptocurrency speculation". The main buyers behind it are not ordinary big households. It can be seen from Grayscale's financial report that the "Grayscale bull" is driven by real money, not manipulation. So, who is so rich?

According to data disclosed by Grayscale in the third quarter of 2020, the main users of Grayscale products are institutional investors (81%), followed by qualified investors and family offices (8% each). 57% of the users are from outside the United States.

As of November 9, 2020, according to publicly disclosed information, a total of 23 companies (29 institutional accounts in total) hold Grayscale Bitcoin Trust shares, with a total of 59.5532 million trust shares, accounting for 11.55% of the issued shares of Grayscale Bitcoin Trust (Note: The statistical caliber is the information publicly disclosed by institutions in the US SEC. The trust shares held by institutions will change in different reporting periods. This article counts institutions that still hold trust shares as of November 9, 2020). The 23 companies include crypto asset lending companies, hedge funds, mutual funds, private wealth companies, consulting firms, family offices, etc.

Data source: Chain Hill Capital

From these data, we can see that Grayscale’s main buyers are institutional investors, and the “Grayscale bull” is essentially an institutional bull. The previous bull market was mainly dominated by retail investors and big cryptocurrency investors, and institutional funds did not dominate; this year, institutional funds have flowed in at an unusually rapid rate, playing a significant leading role. The strategic holdings of institutions also explain the “market appearance” mentioned above to a certain extent—this time the rise is more stable.

In addition, after the main force of the bull market changed, the rhythm of the bull market also changed greatly.

Previously, there were obvious signs of manipulation and speculation by big investors, which led to a phenomenon of rotational rises in the market. Generally speaking, Bitcoin rose, followed by mainstream coins, and then altcoins rose, followed by a big correction. However, institutional investors are generally value investors now, and their main investments are Bitcoin and a few other mainstream coins, so the rotation market is very weak this year. However, we also pay attention to the recent surge in DeFi leaders. Because this batch of DeFi projects has its own value, the recent rise is more of a return to value after the previous oversell.

A more macro mover than institutions: a major transfer of world wealth

We believe that institutional investors will continue to enter the crypto market because the world is undergoing a major wealth transfer. In particular, this year's COVID-19 pandemic and the massive money-printing by central banks of major countries have also promoted such a major wealth transfer. The following is a brief overview from two dimensions.

1. The wealth in the hands of the older generation is beginning to transfer to the younger generation. Grayscale said in its report "The Great Transfer of Wealth Promotes BTC to Become a Mainstream Investment Target" that although Bitcoin was only a niche asset that attracted a small number of investors in the early stages, it is now increasingly accepted by mainstream investors. Survey data shows that the number of potential market investors in Bitcoin was about 21 million in 2019, but it has grown to 32 million in 2020. In 2019, 53% of investors said they were "familiar" with Bitcoin, but this has increased to 62% in 2020. More than 50% of respondents predict that digital currency will become mainstream before 2030. Although most Bitcoin investors do not have much income at present, $68 trillion of wealth will be transferred to the younger generation who prefer digital currency investment in the next 25 years.

   Nick Panigirtzoglou, a market quantitative analyst at JPMorgan, believes that "over time, millennials will become the most important part of the investment world, so Bitcoin and gold will compete fiercely, which is beneficial to Bitcoin's long-term upward trend. Technically, the market value of Bitcoin should increase by at least 10 times in order to match the gold market based on physical bars and coins."

2. Traditional institutional investors are beginning to transfer traditional assets to digital assets. The fundamental reason why institutional investors strategically hold GBTC is that they realize that the digital age has arrived and is irreversible, more and more people will turn to digital assets, and human wealth is undergoing a major migration. On November 9, JPMorgan Chase pointed out in a report that Bitcoin is eroding the market demand for gold ETFs. Today, institutional investors such as family offices view Bitcoin as a digital substitute for gold, and their demand for Grayscale's Bitcoin Trust exceeds the total demand for all gold ETFs.

This view is also supported by data: as traditional institutions entered the market, BTC chips also began to loosen at high levels and continued to transfer.

According to BTCparser monitoring, on November 7, 1,000 BTC mined in 2010 were transferred, and on October 3 this year, 50 BTC mined in 2010 were transferred for the first time. The following figure shows the transfer of BTC chips from a larger cycle.

BTC chip transfer chart over the past ten years

Why do we say that this round of “Grayscale Bull” will be a long and slow bull?

So far, we have basically explained the causes of the original bull market and the differences from the past few times. Of course, for the majority of investors, what they are more concerned about is whether it is too late to get on board now? How long will the Grayscale bull market last?

Let me first state my conclusion. We believe that we are still in the early stages of the “Grayscale Bull Market”. There are two reasons for this:

1. The relationship between Grayscale and institutional investors: The compliance of Grayscale's trust products has provided a channel for more and more restricted institutional investors to buy BTC. In January of this year, Grayscale Bitcoin Trust was approved as the first digital asset tool that meets the standards of the U.S. Securities and Exchange Commission. On October 12, Grayscale's Ethereum Trust registration application was officially approved. The compliance of Grayscale's trust products is one of the important incentives for attracting institutional investors to enter in large numbers this year, and this trend will accelerate in the future. As mentioned above, the reason behind institutional investors' continued purchase of Grayscale's Bitcoin Trust products is an irreversible transfer of wealth.

   (Note from Odaily Planet Daily: In the United States, some institutional investors with investment restrictions cannot enter cryptocurrency exchanges to purchase BTC in the name of the institution, and can only purchase Bitcoin through trust channels. In addition, institutional investors are more accustomed to traditional investment methods such as trusts.)

2. Grayscale Trust Product Principle Mechanism: The design of Grayscale Bitcoin Trust makes it difficult to form selling pressure on BTC, and its holding plan is more inclined to long-term holding. Institutional investors will receive Grayscale's GBTC after purchasing Grayscale's Bitcoin. Investors can exchange BTC for GBTC (with a half-year unlocking period), but cannot exchange GTBC back to BTC. Grayscale Bitcoin Trust currently has no redemption plan, and the trust can seek approval from regulators to implement the redemption plan. This means that neither Grayscale nor institutional investors are likely to form direct selling pressure on the BTC spot market through the GBTC they hold.

In general, institutional investors are still entering in large numbers, and the possibility of a sharp drop in BTC is relatively low. With huge institutional funds flowing into the limited-scale cryptocurrency market, this round of bull market is bound to be a long and slow bull market.