Institutional Investors Boosting Cryptocurrencies, Expert Says

Though investing in cryptocurrencies has proven to be volatile, a flurry of interest from institutional investors has helped improve values in the sector, according to one market watcher.

Cryptocurrency prices have experienced a recent upswing, slowly bouncing back from the 2018 bubble and subsequent crash that sunk the value of one of the best-known digital currencies, bitcoin, to just over US$3,000 from a high of almost US$20,000 in 2017.

As of Monday (February 17), bitcoin was priced at about US$9,750, while ethereum was around US$270.

As mentioned, one industry expert has chalked up the recent increases to the fact that a growing number of larger organizations with deeper pockets are pooling their money into the sector.

“Grayscale is experiencing a growing demand for digital currency access products … with the majority of investment coming from institutional investors — primarily hedge funds. We’re seeing allocations coming from investors with varying mandates and strategies,” Michael Sonnenshein, managing director at Grayscale Investments, told the Investing News Network (INN) via email.

Grayscale specializes in fund-based cryptocurrency investing, which includes single-asset and diversified funds that give investors exposure to the digital currency market. Securities are structured similar to more traditional investment vehicles.

One of the firm’s funds, the Grayscale Bitcoin Trust (OTCQX:GBTC), is one of the highest-performing blockchain-based stocks, according to Barchart, up 223.73 percent in the last 52 weeks.

Several of the firm’s other funds, including the Ethereum Trust (OTCQX:ETHE), the Ethereum Classic Trust (OTCQX:ETCG) and the recently listed Digital Large Cap Fund (OTCQX:GDLCF) are also publicly traded, giving investors a variety of opportunities to get into the crypto game.

Sonnenshein said the funds provide an easy way to get into the digital currency market, allowing investors to avoid the obstacles that come with buying, storing and safely keeping cryptocurrencies.

And the recent boost to the sector has been reflected in Grayscale’s results.

In its 2019 Digital Asset Investment Report, Grayscale notes that it had an unprecedented year of growth when it came to raising funds.

Through last year, a grand total of US$607.7 million was invested into Grayscale’s portfolio of products, an amount larger than all investments seen from 2013 to 2018 combined.

The third and fourth quarter of 2019 proved to be particularly lucrative for the firm. Grayscale saw back-to-back investments totaling more than US$225 million across the two quarters.

A large part of the company’s success can be attributed to its Bitcoin Trust, which raked in US$193.8 million in investments in October, the highest amount generated since the trust was established in 2013.

New clients brought in about 24 percent of the capital raised in 2019 for Grayscale, the report states.

In a previous interview with INN, Sonnenshein said cryptocurrencies could further benefit from more institutional investors and legacy entities in the space as liquidity increases.

“If you look at the digital currency landscape as a whole, now being US$100 billion to US$200 billion in total as an asset class, that’s pretty small when you compare it to the market caps of other asset classes,” he noted, adding that more capital will help raise awareness and draw in larger investors.

Sonnenshein said the cryptocurrency space could soon jump even further, because the next bitcoin “halving” is expected to happen in May of this year. It will be the third in the coin’s history and it should help boost demand for the popular cryptocurrency.

The process will slash the reward for mining bitcoin in half, leading to fewer new bitcoins entering circulation. The drop in the number of bitcoins is expected to drive up demand and prices, Sonnenshein said, noting that investors should keep an eye out for rising prices in the next few months.

In January, Grayscale’s Bitcoin Trust became a US Securities and Exchange Commission (SEC) reporting company with its shares registered pursuant to sections of the Securities Exchange Act of 1934. In accordance with SEC requirements, the trust will now begin filing its quarterly and annual reports.

This article was originally published by the Investing News Network in January 2020. 

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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.