In brief

  • Grayscale’s total assets under management has risen to $3.8 billion, a nearly 50% increase over the year.
  • Most of this buying comes from institutional investors seeking exposure through 401k and pension plans.
  • A fair number of traditional hedge funds are jumping on board, too, as the institutions are warming to Bitcoin as a potential hedge for rampant monetary stimulus.

Business is booming for one of Wall Street’s go-to’s for Bitcoin exposure.

Hedge funds and other financial institutions have poured $1.7 billion into Grayscale Investment’s Bitcoin and cryptocurrency funds, according to an interview with Ray Sharif-Askary, director of investor relations Grayscale.

Sharif-Askary went on the Coinscrum markets podcast to discuss Grayscales’ soaring volumes. According to host Nisa Amolis, the crypto broker and custody has $3.8 billion in assets under management as of June, a significant jump from the $2.1 billion in AUM in May of 2019 and even the $2.2 billion in AUM in March of 2020.  

Additionally, average weekly investment across Grayscale’s cryptocurrency trusts has increased over 800% over the year, from $3.2 million per week in 2019 to nearly $30 million per week in 2020.

Why the sudden surge in interest?

According to Sharif-Askary, 2020 has so far been the year of macro instability and unprecedented monetary stimulus, and institutions are looking to alternative hedges to weather the incipient crisis.

“This has been a record yeara record quarter for us. Candidly, we’ve never seen demand like this before for our products,” Sharif-Askary said in the interview. And many of the buyers have been traditional hedge funds, she said. 

Out of the 90% or so of clients that come from institutions, 44% are multi-strategy hedge funds, while another sizeable portion come from long/short hedge funds, said the Grayscale executive.

Coinscrum markets host Nisa Amolis asked if the exposure came in the form of “401k plans,” as has been the trend since Grayscale started in 2013.

Sharif-Askary responded that “tax-advantaged accounts have always been one of and will continue to be one of” the primary vehicles for high-calibre investors because Bitcoin is “not set up to fit within the operational and legal frameworks of investors.” 

“At the end of the day, our investors are looking to gain exposure to digital assets in a form that doesn't make them have to buy and store to custody these assets on themselves,” she said.

Over the past year, $390 million from these investors went into Bitcoin while $110 million went into Ethereum. Sharif-Askary added that Grayscale’s clients are diversifying into altcoins more; 38% of their clients hold more than just Bitcoin, up 9% from this time last year.

She attributes the growth to the “policy implications of COVID-19.” After all, institutional investors are as interested as anyone in securing scarce assets that “could be used as an inflation hedge in a world where we’re faced with unprecedented monetary stimulus,” she said.

And with no end the economic downturn in sight at the moment, we may be in for more of the same.

Disclaimer

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.