Crypto Gains Increasing Interest From Institutional Investors

KEY TAKEAWAYS

  • Institutional investors are weighing in on the crypto universe, and this is becoming a driving force which cannot be ignored.
  • Crypto assets under the management of Grayscale and XBT Provider have increased to almost 4.1 billion USD.
  • Grayscale now holds around 1.8% of the BTC circulating supply and 1.2% of the ETH circulating supply. 

There has been talk about crypto purchasing from traditional investors now for a long time, but many have argued that Bitcoin is just too volatile for traditional investors to buy into. Some institutional investors say they would never buy cryptos. But what is the truth? Let’s take a detailed analysis of Grayscale and XBT Provider to get a grasp of the issue.

Grayscale, a subsidiary of Digital Currency Group, is currently managing around 3.4 billion USD of crypto assets. 

Of the 3.4 billion, 503.7 million was raised in the first quarter of 2020, while 1.1 billion was raised during the last 12 months. Around 389 million USD inflows are to GBTC, while the other is mostly to ETHE (almost 110 million), which could help explain the outperformance of ETH during the first quarter. 

Note that Grayscale does not offer redemption programs currently due to regulatory constraints, which makes it a pure buyer in the crypto market (it could only sell cryptos to pay trust expenses and fees). As a result, Grayscale holds for the market, in addition to 1.8% of the BTC circulating supply, 1.2% of the ETH circulating supply, 9.1% of the ETC circulating supply and 4.7% of the ZEN circulating supply. Visit our previous articleWhy are Investors Paying a 400% + Premium on ETH? for more details about Grayscale redemption program.

As time goes by, Grayscale is gaining a larger percentage of the Bitcoin circulating supply, and playing a more important role in the crypto market. 

But who are buying crypto products of Grayscale? According to Grayscale, institutional investors, primarily hedge funds, continued to be the primary source of investment capital in the first quarter (88%), while the other contributors are accredited individuals (5%), retirement accounts (4%) and family offices (3%). 

1Q2020 investor profiles more heavily weighted towards offshore investors (57%), compared to roughly even split between US and offshore investors previously.

Another regulated crypto product series, offered by XBT Provider, manage around USD 674 million of crypto asset. XBT Provider was initiated by a bitcoin whale, former JPMorgan energy trader Daniel Masters, husband of Blythe Masters and former CEO of Digital Assets Holdings. XBT Provider products are denominated in Euro and Swedish Krone only. While XBT Provider products track underlying crypto prices better with much lower premiums, the AUM is much smaller than Grayscale.