Ten months into a bear market that has seen cryptocurrency prices decline approximately 75 percent from their all-time highs, analysts differ on whether the bitcoin price has found a bottom or could continue to decline over a time horizon as long as 18 more months. However, Grayscale Investments, the crypto investment firm that created the publicly-quoted Bitcoin Investment Trust (OTC: GBTC), said that it had raised a record amount of funds through the first three quarters of the year.
The New York-based Grayscale made the announcement in its Q3 Digital Asset Investment Report, published on Thursday, adding that the firm saw $81.1 million of inflows during the previous quarter, up 33 percent from Q2. Altogether, Grayscale has raised $330 million in 2018, up a remarkable 1,200 percent from the $25.4 million it had raised last year through September.
“Bitcoin prices doing nothing but go down the entire year has not deterred our existing clients from putting more capital to work,” Michael Sonnenshein, managing director of Grayscale Investment, said during an interview with CNBC. “Asset inflows are really strong despite these price declines.”
“Investors are taking the pullback as an opportunity to increase their exposure,” he added. “The price has not slowed down the pace of investments — it’s actually caused us to broaden our relationships.”
The majority of Grayscale inflows remain concentrated in the Bitcoin Investment Trust, even though, as CCN.com reported, the firm has greatly expanded its range of products in 2018 through the launch of not only single-asset investment funds but also crypto index funds. To date, 73 percent of inflows have been directed to GBTC, whose shares are backed exclusively by BTC.
Notably, Grayscale reported that 70 percent of Q3 inflows came from institutional investors, adding another data point to a trend that suggests that institutions are beginning to warm to the nascent cryptocurrency asset class.
While Grayscale inflows are primarily coming from institutional investors, the firm’s secondary market shares may warrant attention from retail buyers as well, at least when it comes to the Bitcoin Investment Trust.
Accredited investors have always been able to purchase shares at the fund’s net asset value (NAV), as long as they’re willing to purchase at least $50,000 worth of shares and agree to a one-year lockup period before they can sell their shares on the public market.
Retail investors, however, have only been able to purchase shares since the fund was listed on an over-the-counter (OTC) marketplace, where — because shares are not redeemable and fluctuate based on supply and demand — they often pay far more for shares than they are actually worth.
During last year’s frenetic bull run, the Bitcoin Investment Trust traded at massive premiums to its NAV, and it was not rare for shares to be priced at double the value of the actual bitcoins backing them. The fund was so popular among retail buyers that, prior to a 91-for-1 stock split that made shares more accessible to small-scale investors, GBTC ranked as the second most popular stock on investment app Stockpile, which allows investors to purchase fractional shares of expensive stocks.
However, the bear market has dampened retail enthusiasm for cryptocurrency, which has reduced the buy pressure on GBTC’s publicly-quoted shares. At the close of Wednesday’s trading session, shares were priced at $6.74, just 8 percent above the $6.23 NAV.
Until the Securities and Exchange Commission (SEC) finally approves a crypto ETF, GBTC will likely remain the most accessible way for custody-shy investors to acquire bitcoin, as well as the easiest way to obtain exposure to cryptocurrency through tax-advantaged retirement accounts. Consequently, at least so long as the retail premium remains low, it might be time for cryptocurrency investors to give Grayscale a second look.
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Last modified: March 4, 2021 3:06 PM