Why does Grayscale Investments actively buy most of the mined bitcoins?

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Cryptocurrency investment fund Grayscale Investments has purchased every third bitcoin mined by miners in the last 100 days.  And in A...

Cryptocurrency investment fund Grayscale Investments has purchased every third bitcoin mined by miners in the last 100 days. And in April, the fund bought 50% of all ETH mined. At the same time, even despite the financial crisis and the fall of the crypto market in March, shares of the Grayscale crypto trust funds attracted record investments in the first quarter of 2020, which indicates the growing interest of institutional investors in the crypto industry. Why does the company need so many coins, what is its current position in relation to the crypto market and what role does it play in it.

Grayscale Investors Believe in Bitcoin

Grayscale Investments, a subsidiary of the Digital Currency Group (DCG), owner of the well-known crypto media CoinDesk. The investment fund is the largest institutional holder of bitcoin. The firm's main product is the Grayscale Bitcoin Trust (GBTC), which allows accredited investors to make money on Bitcoin without actually owning it. Grayscale Bitcoin Trust tracks bitcoin price based on the TradeBlock XBX Index.
Grayscale is accumulating bitcoin at an impressive scale. Reddit user  u / parakite  noticed that the fund added 60,762 BTC ($ 548.3 million as of publication date) between February 7 and May 17. This is a third of the total amount of bitcoins mined in the last three months.
The user made a table showing how the amount of bitcoins in GBTC changed:
As you can see, the rate of purchases of the MTC by the fund has been increasing since the end of 2019. GBTC become more aggressive in their acquisitions in early April before approaching  halving of m  Bitcoin network. About 34% of the 60,762 BTC were purchased 17 days before the miner fee cut.
As of May 17, GBTC had a total of 343,954 BTC under management. This is 21% more than the 283,192 BTC held by the fund 100 days earlier. In value terms, the portfolio grew from $ 2.77 billion to $ 3.37 billion.
“Grayscale is just one of many, albeit the largest, ETFs that people use to buy bitcoin, not wanting to mess with private keys and other problems,” commented u / parakite. - There is a demand for it. The supply is shrinking. Let's see where we are in 100 days. "
88% of Grayscale clients are institutional investors. Most likely, the sharp increase in the rate of purchase of MTC, in addition to the last halving, is due to the desire of investors to hedge risks during the developing crisis.
GBTC stock price last year, according  to  Yahoo.Finance. The price of GBTC shares (units) does not coincide with the price of BTC, depends on investor sentiment and can be traded both with a premium and with a significant discount. It usually follows bitcoin, but sometimes trends diverge. Thus, the difference between the July and the current rate of the BTC is 20-30%, and between the same GBTC shares - about 70%.

Grayscale also bought half of the ETH mined in April

Grayscale's aggressive crypto buying has recently been spotted on Ether as well. So, by April 24, the company had purchased about 756,539 ETH (exact data is not publicly available) for its Ethereum Trust. This is about 48.4% of all mined 1.5 million coins since the beginning of this year. As a result, the company already owns 1% of all coins in circulation and only increases the pace of purchases. This was first  noticed  by a Reddit user under the nickname  u / nootropicat.
According to the  latest quarterly report from Grayscale, ETH investment inflows reached a record high in the first three months of 2020 - $ 110 million. This is a very sharp increase considering that the total investment in ETH over the previous two years amounted to $ 95.8 million. The total demand for the Ethereum fund grew over quarter by almost 2.5 times compared to the fourth quarter of 2019.
From the beginning of the year to the end of April, the company issued 5.23 million units of the fund at 0.09427052 ETH per share. At the same time, the shares are traded with a premium of 420% relative to the current price of the coin - $ 92 against $ 17.70. That is, investors are ready to pay pretty much in order not to deal with cryptocurrency on their own.
Most likely, the increase in the rate of coin buying is due to the upcoming upgrade of the network to the state of Ethereum 2.0. It may take place at the end of July, but, most likely, it will still happen not earlier than the end of the year. After the upgrade, the network will become more scalable and it will have the possibility of staking - validators will be able to receive passive income for providing their funds to confirm blocks.
The crypto market, by the way, is also preparing for the transition of the ecosystem to a new stage. Since the crash in March, ETH has surged 55% from $ 110 to $ 202 on day of publication. At the end of April, CoinDesk  drew  attention to an increase in the number of long positions in ETH futures - this indicates expectations for further growth of the coin.

The past quarter is the most successful in the history of the company

In May Grayscale Fund has published  a report  on the results of the first quarter of this year. “ Despite the decline in risky assets this quarter, Grayscale assets continue to approach record highs, as does our share of the digital asset market ,” the document says. And this despite the coronavirus pandemic, global recession and traditional cryptocurrency market volatility.
A record $ 503.7 million in investments were raised in the first quarter. This is almost double the previous quarterly high of $ 254 million in the third quarter of last year and represents 83% of the total $ 1.07 billion capital raised for all of 2019. New investors accounted for $ 160 million of raised funds. The flagship products of the Grayscale Bitcoin Trust and Grayscale Ethereum Trust raised $ 388.9 million and $ 110 million, respectively. It is noteworthy that the company has reduced the premium on the funds' shares relative to the asset price.
88% of investments came from institutional investors, which are dominated by hedge funds; 5% - from accredited individuals, 4% - from retirement accounts (yes, pension funds are extremely conservative in nature, but they also invest in bitcoin against the background of a decrease in the profitability of other assets); 3% - from family offices, and 38% of clients invested in several products at once.
It is noteworthy that two years ago, the share of institutional investors was about 50% - it is obvious that they no longer consider Bitcoin as something criminal.
“Many of our investors see digital assets as medium to long term investment opportunities and a core component of their investment portfolios. Quarterly inflows doubled to $ 503.7 million, demonstrating that demand is reaching new peaks even in the face of “risk reduction,” the document says.
To date, more than 46.5% of the inflow of funds has been attracted from multi-strategy investors. Crypto investors accounted for just 11.2% of inflows, according to the report. Source .
Grayscale currently operates ten cryptocurrency investment products targeted at institutional investors. They cover ВТС, ЕТН, ЕТС, BCH, ZEC, XRP, LTC, ZEN, XLM. The value of assets under his management is more than $ 3.8 billion. GBTC is the most popular product, most investors invest in it and it takes about 1.7% of the total volume of circulating bitcoins.
Cumulative Quarterly Funds for Various Grayscale Products. Notice how the share of investors diversifying portfolios with altcoin-linked products is growing. Source .
Since January this year, the Grayscale Bitcoin Trust is  registered  with the US Securities and Exchange Commission (SEC). According to it, the company provides quarterly and annual reports in the 10-K form. The status makes it possible to sell the units of the trust in the secondary market after 6 months, and not 12, as before, and also increases the confidence of conservative investors. The rest of the products comply with OTCQX OTC reporting standards and are  approved  by the Financial Services Regulatory Authority (FINRA) for public offering.
The volume of assets managed by Grayscale as of May 20, 2020. Source .
Notably, news of Grayscale's success comes amid news of panic-stricken traditional asset investors fleeing market turmoil. For example, the largest fund managers - BlackRock, Vanguard and State Street Global Advisors -  lost  several trillion in capitalization of their assets, while BlackRock experienced a  net outflow of funds from its long-term investment products for the first time in five years in the first quarter  .

Bitcoin is the best asset for hedging portfolios during a crisis

At the end of April, Grayscale also  released a  separate report analyzing the impact of regulators during the pandemic and the crisis it caused, and how it affected bitcoin and the crypto market in general.
The document says fiat currencies are at risk of devaluation as central banks print more money. Even the US dollar, which is the world's reserve currency, risks being devalued if the US Federal Reserve continues to print the currency in trillions. And a decrease in interest rates to zero and negative values ​​deprives government bonds of the status of a "safe haven" during the crisis.
Therefore, investors are trying to diversify their portfolios with alternative instruments. Cryptocurrencies are the best choice for this, according to the report's authors. The text emphasizes the historical importance of gold as a global standard, but notes that in today's digital world it is becoming more and more burdensome for investors - it has complex logistics. Bitcoin seems to be resilient to the problems that other assets face. Therefore, in times of economic uncertainty, the first cryptocurrency is one of the best assets that investors can use to hedge their portfolios. The coin performs better than any other asset, including fiat currencies, government bonds and traditional commodities like gold. The authors of the report emphasize
At the same time, the company believes that Bitcoin is an excellent asset not only in times of crisis. So, in December 2019, the managing director of Grayscale Investments, Michael Sonnenshine,  said that the company expects an inflow of investments in bitcoin after the transfer of $ 68 trillion of savings between generations in the next 25 years. Today, this capital is invested in traditional assets, but a significant part of this wealth will be invested by millennials in cryptocurrencies. Already, he said, investments in GBTC are among the five most popular among young people, ahead of, for example, investments in Microsoft and Netflix.

Finally

The unprecedented financial measures taken by the US Federal Reserve, as well as the deepening recession, are forcing even the most conservative investors to rethink their current strategies and portfolio composition. Many of them are increasingly beginning to appreciate the fixed emission and uncorrelatedness of bitcoin - it becomes a tool for diversifying risks. The growing institutional interest is driving the coin's price acceleration.

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