After the Bakkt crypto futures exchange got off to its rather disappointing start, the financial news media has been inundated with articles that claimed that institutional investors really were opposed to all things crypto. The storyline went that the market was too volatile, it lacked liquidity, and no institutional investor in his right mind would ever venture into these unknown, unregulated waters. NOT, or so say the folks at Grayscale Investments, where the word on the street is that institutional investors have been “investing with us all the time”.
The Digital Currency Group founded Grayscale Investments in 2013. By March of 2017, the firm was managing $208 million in investment funds in its Bitcoin Investment Trust, a trust that is limited to “accredited investors”. Within the next year, additional trusts were created for Ethereum, Litecoin, Bitcoin Cash, and Zcash. The firm now has roughly $3 billion in funds held in custodial arrangements with Coinbase for its various passive investment funds. Its parent also owns the popular crypto news outlet, Coindesk.
Grayscale is now one of the largest crypto asset management firms on the planet, deliberately catering to its clients that demand access into the crypto market on their terms. In a recent interview with The Block, Rayhaneh Sharif-Askary, the Director of Sales and Business Development for Grayscale, debunked the myth that the “Big Boys” are staying away from the crypto market.
According to Sharif-Askary: “I get asked this a lot; there is this rhetoric in media of when institutional investors are going to get involved, when they are going to start investing. It’s ironic because we see institutional investors investing with us all the time and that’s been the case for a long time now.”
Sharif-Askary was actually happy to see the advent of Bakkt and was not discouraged that early returns were lower than expected. She expressed that, from her perspective, she was “thrilled to see more on-ramps that can onboard more institutional investors”. She and her staff appreciate that there is another group on the front lines working with potential new investors: “We are a lean team, we can’t be the only one running around educating investors and providing access to this asset class.”
From a numbers point of view, Grayscale has been ramping up. Its rate of new investments for the second quarter was double its prior rate, some $85 million, and on a more informative note, 84% of this figure came from those supposedly sideline-sitting institutional clients that crypto enthusiasts are worried about. The data from Grayscale does seem to corroborate the notion that institutional capital has actually been the force behind Bitcoin’s rise in 2019. By most accounts, retail consumers have chosen to take a backseat for whatever reason.
In this regard, Blockonomi has reported that TokenAnalyst has found that the current year’s rally is unlike 2017, based on an analysis of unique addresses that send funds to major exchanges. According to Sid Shekhar, co-founder of the firm: “The low number of incoming transactions suggests a lack of retail interest in general currently in crypto. If we go by the ‘Bitcoin as safe haven in times of recession’ narrative, the number of new users/buyers should actually be increasing.”
Of note, however, is that 25% of quarter two deposits were directed to altcoin trusts, a sign that investors are willing to diversify their interests. Sharif-Askary sees these moves as positive and indicative of an acceptance on the part of investors for all things crypto: “It's a sign that investors are getting more comfortable with the asset class. It's great to see diversification.”
At the end of the day, this growth in Grayscale is good news on the institutional front. At a recent “Power Lunch” segment of CNBC, Joe Kerner, a partner at Crypto Oracle and a former Goldman Sachs analyst, emphasized that Bitcoin does not need institutions to survive. Its growth has come from the retail sector, and per Kerner: “Institutions will be the followers in this market, not the trailblazers.”