What is Grayscale And Why It Matters

What is Grayscale And Why It Matters

By Zenthereum | Zenthereum | 22 Jun 2020


Grayscale Investments is the largest digital asset manager, having under its management more than $3,8 Billion in assets.

The Grayscale Investment Trust (grayscale.co) was initially launched in 2013 under the name "The Bitcoin Investment Trust" (originally BIT) and was approved to be traded publicly. It is currently a subsidiary of the Digital Currency Group (dcg.co). DCG subsidiaries besides Grayscale also include  Coindesk and Genesis Capital. Both Grayscale and DCG were founded by Barry Silbert.

Founder and Ceo

Barry Silbert  is the founder and CEO of the Digital Currency Group.

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Barry Silbert (source)

Barry Silbert is a major cryptocurrency proponent and has fully devoted his business career to Bitcoin and the cryptocurrencies related sector. Other members of the DCG board are Mark Murphy (COO), Casey Taylor (VP, Network), Simi Wurtzel (VP, Finance), Jigar Shah (Assistant Controller), Larry Sukernik (Associate, Investments) and the board members, Glenn Hutchins and Lawrence Lenihan.

DCG has invested in various notable Bitcoin and crypto-related corporations as Blockstream, Blockchain.com, Brave, Coinbase, Ledger, Lightning Network, Ripple, Xapo, many cryptocurrency projects as Decentraland, Hedera, Horizen, and hundreds more of cryptocurrency-related projects and companies. You can find the whole DGB portfolio here.

In January 2020, Grayscale's Bitcoin Investment Trust also become a fund reporting to the SEC, with its shares registered to the Securities Exchange Act of 1934 (section 12g). Attaining the status of a SEC (Security and Exchange Commission) reporting company allowed accredited investors of the trust to liquidate their positions after 6 months instead of 12 which was the prior limitation.

GBTC - The Grayscale BTC

The Grayscale Bitcoin Trust is an investment that can be traded by investors using their private accounts.

Investors can trade shares of the trust under the symbol "GBTC". The Grayscale stocks are traded in the OTCQX exchange, which is an over-the-counter exchange for various stocks outside of the US, that follow certain criteria.

The shares of Grayscale's GBTC product represent ownership of Bitcoin, which is in fact stored under they custody of Grayscale, in wallets they control.

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Source: Marketwatch

On October 2018, 1000 shares of GBTC representing 1 BTC. So today for an investor to buy one full Bitcoin (equal to 1,000 GBTC shares) he needs to pay $10,300, while actual price of Bitcoin is $9365, meaning that there is a premium of 10% paid by investors of GBTC.

The GBTC trust requires all potential participants to invest a minimum of $50,000, and there is an essential period of 6 months holding before an investor can resell.

Other Investment Products

Grayscale gradually added more trust products besides Bitcoin. These include Ethereum (ETHE), Ethereum Classic (ETCG), Bitcoin Cash, ZCash, Litecoin and XRP.

Chronological Order of Grayscale's Single Asset Investment Products

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Source: Grayscale

Ethereum

The Grayscale Ethereum Trust (ETHE) became available for trading in June 2019, after receiving approval by FINRA to trade on OTC markets. This product is not registered with the SEC and is not subject to the same regulations, but instead, they are offered in private placements and are restricted to limitations on resales. All ETHE shares are limited to 12 months holding period before being available for liquidation. The minimum investment is 25K USD.

It is worth noting that lately the ETHE single-asset investment product reached extreme valuation and has been traded at a 500-1000% premium to the actual Ethereum's price since April. Certainly, investors feel that Grayscale is a safe way to invest in the world of digital cryptocurrencies, but it seems that perhaps many misunderstood the price of the ETHE shares with the price of the Ethereum Token.

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Source Google

On June 4th, 2020 price of the Grayscale Ethereum Trust reached $239.50 while Ethereum's average price in cryptocurrency exchanges was $245.00.

ETHE is a stock representing 0.09401903 of 1 ETH coin (less than 1%), so even today's price to be justifiable it would require Ethereum's price to reach around $1800. This means that ETHE investors are buying Ethereum at a premium of 750%!

ETHE is the only financial product in the traditional markets that provides exposure to investors on Ethereum, and perhaps there is some confusion over its actual price. I wouldn't expect any rational investor to buy an asset at seven times more than the price it is actually sold.

Ethereum Classic

Besides Ethereum Grayscale is also offering an Ethereum Classic Trust under the name ETCG with a ratio of 1 share equals to 0.90958127 ETC. This product is also offered through OTCQX exchange, which is also approved by FINRA.

Rest Products

Finally Grayscale is also offering similar investment products for Bitcoin Cash, Zcash, XRP, and Litecoin. These products are also under strict limitations and are offered only to qualified accredited investors that want exposure on cryptocurrencies. These investment funds are also Trusts and they require a 12 month holding period before restrictions of reselling are lifted.

Grayscale Products Performance

Bitcoin is the flagship of Grayscale. The Trust was created in 2013 and the last Bitcoin bull-run provided amazing results for the company. The Grayscale Bitcoin Trust (GBTC) has provided returns of 6,407.10% since it's inception. The rest products except for ETC have underperformed since their inception.

Net Performance as of May 31st, 2020.

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Source: Grayscale

This latest report released by Grayscale provides the success and failures of its products. Besides Bitcoin Trust, the rest products were created close to the peak of the 2017-2018 cryptocurrency bubble and were expected to underperform since the altcoins are in a 2 and a half year bear cycle. Since 2018 no further cryptocurrency product has been created by Grayscale.

Thoughts

Lately, we keep reading in the news that Grayscale is buying a large chunk of Bitcoins and Ethereum traded in exchanges. It is important to mention that it is not the company that is actually buying the Bitcoins, but instead Grayscale is a third party that manages investors' funds and orders to buy these assets. The interest we've seen in Bitcoin and Ethereum lately is coming from institutions and accredited individual investors that want exposure in cryptocurrencies.

For this reason the crypto media are talking about institutional interest.

We also have the option of CME (Chicago Merchantile Exchange) Bitcoin Futures where no physical Bitcoins are traded with buy or sell orders. The CME exchange is only a huge bet on Bitcoin. When the CME Bitcoin Futures expire the settlement is in cash and not in Bitcoin (as stated by CME here). So no actual buying or selling of Bitcoins is going on but everything is settled in USD. Other future markets are settled upon expiry with the delivery of the asset to the investor. In case of oil for example the investor will have to receive the oil barrels he bought upon expiry of the futures contract.

Grayscale Trust on the other hand deals directly with cryptocurrencies, trades assets in exchanges, and holds wallets for its investors' accounts. It is direct exposure of investors to cryptocurrencies.

Reposted on Uptrennd

Header Image Source - Modified


Zenthereum
Zenthereum

Bitcoin, Ethereum, Monero and ZCash Investor - Not a trader. Hobbies: Whitepapers https://twitter.com/zenthereum https://www.uptrennd.com/user/zenthereum https://read.cash/@zenthereum


Zenthereum
Zenthereum

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