With total asset management scale reaching a new high of US$9.1 billion, how will Grayscale Trust contribute to the digital future?

In the past week, Bitcoin has performed very well among global assets. As the price of the currency broke through last year's high of $15,900, the market value of the digital currency market has jumped to a higher level. Traditional large Wall Street institutions such as Grayscale set a new record of $9.1 billion in AUM on November 6.

As the leading investment and asset management company in the current digital currency market, Grayscale has always attracted much attention. For example, on October 13 this year, its ETH trust registration application submitted to the U.S. Securities and Exchange Commission (SEC) was officially approved, and Grayscale ETH Trust became its second digital asset investment tool that meets SEC standards after BTC Trust. As soon as the news came out, it immediately caused heated discussions in the market. So, what exactly is Grayscale Trust, how it operates, what is the asset management status, and what far-reaching impact it has on the digital currency market, the author will provide readers with reference through this article.

About Grayscale Investments

"Invest in a Digital Future" is the slogan written on Grayscale's official website. After noticing the trend of digitalization and the value of digital currency that is different from conventional economic, political and social systems in the early years, Grayscale was officially established in 2013 to provide investors with transparent and familiar trust investment products to help them cope with digital currency investment. Grayscale founder Barry Silbert is also the CEO and founder of Digital Currency Group (DCG), which has a huge investment portfolio in the field of digital currency and blockchain.

"Trust is entrusted to manage money on behalf of others". Trust has been developed for a long time in the traditional economic and social system. It usually refers to the act that the principal entrusts the trustee (trust investment company) with the property he legally owns, and the trustee manages or punishes the property in his own name in accordance with the principal's wishes for the benefit of the beneficiary or for a specific purpose. The principle of Grayscale Trust is the same. Customers can purchase the corresponding trust shares with cash or digital currency. Taking its most representative product, Bitcoin Trust (GBTC), as an example, at the stage when Bitcoin ETF has not yet been approved by the SEC, it is a compliant way to passively invest in Bitcoin. Customers can purchase a number of GBTC shares from Grayscale with cash or Bitcoin and trade them on the traditional over-the-counter market OTCQX. As of November 8, Beijing time, Grayscale has a total of 516 million GBTC shares in circulation, and a customer holding one share represents 0.00095299 Bitcoins behind it. Due to various costs, market frictions and expectations, GBTC is often at a premium to Bitcoin. The current cost of investing in Bitcoin through GBTC is about US$18,000, while the cost of purchasing Bitcoin itself is US$15,000, with an 18% price difference between the two.

In addition to the premium, Grayscale customers usually have to pay an annual management fee of 2% to 3%. So, what factors make them choose to buy Grayscale Trust instead of digital currency itself? The author believes that in addition to the compliance advantages, there are two core reasons. According to Grayscale's recently released Q3 quarterly report, Grayscale's customers in the past year include 80% of institutional investors, 12% of qualified individual investors, 4% of family offices and 3% of retirement accounts. American customers account for nearly half (44%), and offshore accounts account for 56%. On the one hand, most of these customers should be traditional investors. Faced with the new investment market of digital currency, the trust form is easier for them to accept. While eliminating the learning cost, customers do not have to worry about the custody, loss and trading of coins. On the other hand, trust products can enjoy certain tax benefits in the United States, which American investors value very much.

Grayscale customer type and regional distribution Chart: Cointelegraph Chinese

Analysis of Grayscale Trust Composition

As of November 8, Beijing time, Grayscale manages a total of ten digital currency products, with an asset management scale of up to US$9.1 billion, equivalent to 2.1% of the current overall digital currency market. The key information of each trust or fund is shown in the table below. It can be seen that in addition to the large-cap trusts with the highest market value, Grayscale has also invested in niche currencies, such as Horizen (ZEN). GDLC is a special index fund that tracks the weighted market value of five major currencies. Among these existing products, the Bitcoin Trust has the largest scale, accounting for nearly 86%, and the amount of coins held behind it has reached 2.75% of the current Bitcoin circulation, which is a very high proportion. The second-ranked Ethereum Trust was established later and has shown a significant growth in the past year, now accounting for 2.2% of the circulating market value of Ethereum. In contrast, the scale of the remaining products is still relatively small, accounting for only 3.4% of Grayscale as a whole. In addition, judging from the asset price changes of the underlying assets in the past year, BTC, ETH and ZEC have all exceeded +40%, which is more optimistic than the return rate of most traditional financial products.

Grayscale's current asset management products Chart: Cointelegraph Chinese

Grayscale Bitcoin Trust has grown strongly over the past two years. After the Bitcoin halving this year, its inflows accounted for a new high in the proportion of Bitcoin mined during the same period. Taking the most recent third quarter as an example, this figure reached 77%, which means that most of the new Bitcoin supply was absorbed by Grayscale Trust alone. In addition, it should be noted that GBTC does not support customer redemption so far, and has a one-year ban on sales, which plays an important supporting role in the current Bitcoin price.

Grayscale Bitcoin Trust quarterly inflow/Bitcoin mining volume in the same period Chart: Cointelegraph Chinese

The value and significance of Grayscale's layout in the crypto industry

In the context of the prevalence of quantitative easing policies and the advocacy of financial technology innovation, digital currencies are gaining more and more attention in traditional fields. With the gradual advancement of blockchain and smart contract technology, and the increasing richness of application scenarios, the value of digital currencies is becoming more prominent. To invest in the digital future, trust institutions like Grayscale are indispensable. In general, the author believes that its significance lies in:

1) At this stage, the number of compliant investment tools approved by the SEC is still limited, and Grayscale Trust is the only choice for qualified investors to make passive investments. In the past few years, the road to the launch of digital currency ETFs has been bumpy, and the much-anticipated ETF application will take time to succeed. Grayscale Trust provides customers with convenient investment tools, especially investors from traditional fields.

2) Grayscale plays the role of a water guide, continuously injecting new power into the digital currency market. The addition of a large amount of traditional institutional funds has also made this emerging market increasingly professional and mature.

3) Relatively speaking, most investment and asset management institutions in the digital currency market are still relatively immature. Institutions like Grayscale can set an excellent example for the industry with their professionalism, transparency, compliance and scale advantages.

Just as Grayscale’s slogan “Invest in a Digital Future” says, I believe that with the help of professional trust, it will be worth waiting and seeing when the digital future will truly arrive.