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Aug 37 mins read

Grayscale Investment Trust and Digital Currency Group

The leading digital asset management firm

Grayscale Investment Trust and Digital Currency Group

In the cryptocurrency market, there is a Bitcoin whale that quietly accumulates coins without selling, regardless of market conditions. This whale is the Grayscale Investment Trust, a subsidiary of the Digital Currency Group, which was established in 2013.

Grayscale Investment Trust Logo

Grayscale is the world's largest asset management fund dedicated to cryptocurrency investments and provides a legal channel for investors to buy and sell cryptocurrencies through cryptocurrency trust funds.

Grayscale Investment Trust Fund Portfolio

The Digital Currency Group is one of the most active and influential cryptocurrency ventures globally and has supported over 160 companies in more than 30 countries across various sectors in the cryptocurrency industry.

Digital Currency Group Logo

Grayscale's founder and CEO, Barry Silbert, previously founded SecondMarket, a platform that simplified the transaction process for private companies and investment funds.

Barry Silbert - Founder and CEO of Grayscale

Grey-scale Fund

Grey-scale Fund manages nine funds, including a management fund that focuses on high-value currencies.

Trust Fund Products

Grey-scale Fund's trust fund products include:

  • Bitcoin Trust
  • Bitcoin Cash Trust
  • Ethereum Trust
  • Ethereum Classic Trust
  • Litecoin Trust
  • Stellar Lumens Trust

Grey-scale Bitcoin Trust Fund

Grey-scale's most well-known product is the Grey-scale Bitcoin Trust Fund, which currently holds 641,500 Bitcoins valued at $22.233 billion.

Operation

Grey-scale operates in a similar way to a gold ETF fund, and generates profit through management fees. However, Grey-scale's shares do not support redemption, and after purchase, the fund shares must be locked. Additionally, qualified investors and institutional clients cannot redeem their invested coins, and must instead sell corresponding fund shares on the secondary market to realize profits.

Grey-scale Bitcoin Trust Fund Image source: Pixabay

Grey-scale Fund Logo Image source: Grayscale

Grayscale: The Leading Digital Asset Management Firm

Grayscale is a digital asset management firm that provides institutional investors with exposure to cryptocurrencies such as Bitcoin, Ethereum, and others. Since its inception, Grayscale's holdings have shown a unilateral upward trend, making it the go-to investment tool for institutions looking to get into the cryptocurrency market.

Management Fees and Investments

Like traditional trust funds, Grayscale mainly earns money through management fees. Currently, the management fee for Grayscale trust funds is much more generous than the traditional trust industry. For example, the management fee for GBTC is 2% per year, and Grayscale earns a staggering amount of pure profit from GBTC alone.

The figure below shows the annual management fee for Grayscale's fund trust products.

Grayscale Management Fees

In addition, according to Grayscale's Q4 2020 report, the majority of investors (93%) come from institutions, led by asset managers. Grayscale managed assets of $2 billion at the beginning of 2020 and had reached $202 billion by the end of 2020. The Grayscale Bitcoin Trust became one of the fastest growing investment products in the world in 2020, with assets under management growing from $1.8 billion to $17.5 billion.

Therefore, the Grayscale Bitcoin Fund has become the main channel for institutional investors to enter the Bitcoin market.

SEC Regulation and Approval

In 2020, Grayscale registered as a company that must report to the U.S. Securities and Exchange Commission (SEC). This means that GBTC is the first cryptocurrency investment tool to report to the SEC quarterly, informing the company of any unplanned events or changes and sending relevant approved statements to the SEC.

In October 2020, Grayscale's Ethereum Trust Fund also received SEC approval, becoming the second digital currency investment tool under its umbrella to be licensed.

Unique Redemption Mechanism

Grayscale's unique redemption mechanism gradually increased its holdings. Investing in Grayscale's cryptocurrency trust products can be divided into two forms: cash contribution and physical contribution.

Cash contribution means that investors pay cash directly to Genesis Global Trading, a cryptocurrency off-exchange broker under DCG, and Genesis exchanges it for designated cryptocurrencies such as Bitcoin, Ethereum, or others at the market price. Then, Genesis delivers these cryptocurrencies to Grayscale Fund, and Grayscale's holdings gradually increase.

Grayscale Process

Overall, Grayscale's success can be attributed to its reputation as a reliable and regulated digital asset management firm. As more institutions enter the cryptocurrency market, Grayscale will continue to play a significant role in shaping the industry.

Invest in Grayscale's Cryptocurrency Trusts

If you're looking for a secure and trustworthy way to invest in crypto assets, look no further than Grayscale's cryptocurrency trusts. Grayscale is a leading digital asset manager that offers products like GBTC (Bitcoin Trust) and ETHE (Ethereum Trust) which give investors exposure to the price movements of crypto assets without having to hold them directly.

Physical Investment

In addition to cash investment, Grayscale also allows physical investment in the trusts. This means that you can deliver your own Bitcoin or Ether to Grayscale in exchange for trust shares. The minimum investment for physical investment is $50,000.

Secondary Market Trading

Several Grayscale cryptocurrency trust products have already been launched on secondary market trading platforms. Investors with a US stock account can directly purchase them through these secondary markets, including premiums.

GBTC Premiums and Arbitrage

Grayscale Bitcoin Trust does not support share redemption, meaning that once you buy GBTC shares, you can only sell them on the US OTC market. Due to high demand, GBTC's secondary market price is often higher than its net asset value, creating a premium for the shares.

This premium creates an arbitrage opportunity for institutional investors, who can participate in GBTC's private placement in the primary market, wait for the unlock, and sell in the secondary market for a profit.

Conclusion

Investing in Grayscale's cryptocurrency trusts gives you a safe and regulated way to invest in crypto assets. Whether you choose to invest in cash or physical assets, you'll benefit from the security and transparency of Grayscale's products. And if you're an institutional investor, the GBTC premium provides an exciting arbitrage opportunity.

coinbase-custody Coinbase Custody

gbtc-premiums GBTC Premiums

The Grayscale Bitcoin Trust Fund

Grayscale Bitcoin Trust Fund

The Grayscale Bitcoin Trust Fund has a unique redemption mechanism that makes it easy to bring external incremental funds to the cryptocurrency market. This increases demand for Bitcoin and transfers the market's selling pressure to the US OTC market, making the Grayscale Bitcoin Trust a "buy-only" bullish force in the market.

Regulation and Tax Benefits

Bitcoin Trust is regulated by the US SEC and has complete disclosure of information, making it easier for traditional investors to accept. Trust products in the US also enjoy certain tax benefits, which is important for US investors. Grayscale Trust has similar tax advantages, making Bitcoin investment in Trust form attractive to them.

Custody and Investor Benefits

Custody of virtual currency is a technical activity, and key leaks and hard disk damage can lead to the loss of virtual currency. Grayscale can complete the entire custody process for investors and is regulated by the SEC. Investors only need to pay attention to the fluctuation of Bitcoin, saving them time and cost.

Grayscale Bitcoin Trust Fund Chart

Barry Silbert's Call

Founder Barry Silbert tweeted a call for ZEN, pushing its price to new highs. Although Grayscale Trust itself has no investment position, Grayscale Investment makes money through management fees and naturally hopes that the coin price will rise to attract more investors to purchase its products and contribute management fees.

Grayscale funds have existed for a long time and gained widespread attention due to the expansion of Bitcoin consensus and its entry into the vision of traditional financial markets.

References:

  • Alpha Zone: The Largest Bitcoin Institutional Investor: Grayscale Capital
  • Coin World: An Article to Help You Understand the Real Grayscale Fund