Grayscale Investments

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Grayscale Investments
Grayscale-logo.jpg
Founded 2013
Headquarters New York, New York
Key People Barry Silbert, Founder and CEO; Michael Sonnenshein, Managing Director
Employees 41
Products Bitcoin investment trust
Twitter @grayscale
LinkedIn Profile
Facebook Page
Website Grayscale
Releases Company News
Blog The Source


Grayscale Investments is a company that manages cryptocurrency investment funds, the best known of which is the Grayscale Bitcoin Investment Trust. The company is a subsidiary of the Digital Currency Group, which also owns the cryptocurrency news and digital media company Coindesk.[1]

Grayscale Bitcoin Trust (GBTC) is one of the first securities solely invested in and deriving value from the price of Bitcoin (BTC). It enables investors to gain exposure to BTC in the form of a security while avoiding the challenges of directly buying, storing, and safekeeping BTC.[2]

History[edit]

Grayscale Investments was created in 2013 by the Digital Currency Group.[3]

In March 2017, Grayscale managed $208 million worth of investments in the Grayscale Bitcoin Investment Trust. By March 2018, the company had created investment trusts for Ethereum, Ethereum Classic, Litecoin, XRP, Bitcoin Cash, and Zcash in addition to bitcoin. By that time, Grayscale was managing more than $2.1 billion in cryptocurrency investment trusts.[4][5] The company launched an investment trust for Zen, a privacy-focused digital currency similar to Zcash, in June 2018.[6]

According to Grayscale, 56 percent of the money it raised in the first half of 2018 came from institutional investors, 20 percent from accredited individual investors, 16 percent from retirement investors, and 8 percent from family office investments.[7]

After the bitcoin price reversal from highs of more than $40,000 in early January 2021, the price premium for Grayscale's Bitcoin Investment Trust over the price of bitcoin collapsed from highs of 40 percent to a little under 3 percent on January 22.[8] Investment trusts in general may be priced in the market differently than their underlying components because of restrictions on buying into the trust and liquidating shares.

A few days later, the company announced that it had donated $1 million to Coin Center and was making an additional $1 million donation matching commitment to the Washington, DC-based trade association.[9]

Grayscale filed plans with the SEC in October 2021 to convert GBTC into an exchange-traded fund. But in June 2022, the SEC rejected Grayscale’s bid to convert the product into an ETF because of Bitcoin fraud and manipulation concerns, it said. Grayscale sued the regulator in the US Court of Appeals for the District of Columbia Circuit, arguing that the SEC was “failing to apply consistent treatment to similar investment vehicles,” for example, the existing futures-backed Bitcoin ETFs.[10] On August 29, 2023, a three-judge appeals panel in Washington overturned the SEC's decision to block Grayscale's proposed ETF, which would be tied to the spot Bitcoin price.[11] The decision boosted the price of Bitcoin futures more than 7%, as investors hoped it would pave the way for broad investor access to the cryptocurrency.[12]

Regulation and compliance[edit]

Grayscale said in a November 19, 2019 blog post that it had applied to the U.S. Securities and Exchange Commission (SEC) for the Bitcoin Investment Trust to be designated an SEC reporting company and to register its shares pursuant to Section 12(g) of the Securities Act. The company notes that, if approved, the trust would report financial results according to SEC standards. The blog post also stated that approval would not make the shares in the trust eligible for trading on an exchange, as if it were an ETF.[13]

In August 2020, Grayscale announced that it had filed the same request with regard to its Ethereum investment product, the Grayscale Ethereum Investment Trust.[14]

In July 2023, Grayscale "notified the court overseeing its case against the SEC that the agency recently allowed a leveraged bitcoin futures ETF to begin trading, a development Grayscale says bolsters its already strong argument that the SEC treats spot bitcoin ETFs unfairly." [15]

Bitcoin price plummets[edit]

By October 2018, the price of shares for the Grayscale Bitcoin Investment Trust (GBTC) had gone down 80 percent. Investors cited bitcoin's huge price decrease since December 2017, as well as GBTC's high fees, as the cause. (GBTC charges investors $20 for every $1000 invested, or 2 percent. Some consider this to be too high; according to the Investment Company Institute, the average equity mutual fund expense ratio was around 0.59 percent in 2017).[16][17]

SEC approves spot Bitcoin ETFs[edit]

On January 10, 2024, the SEC approved the trading of ETFs on spot Bitcoin for 11 firms, one of which was Grayscale. Grayscale converted its Grayscale Bitcoin Trust into a spot bitcoin ETF and launched the instrument on Jan. 11, 2024, trading $2.3 billion in volume in its first day on the New York Stock Exchange.

Products and services[edit]

Grayscale Investments manages a number of investment trusts, which it refers to as private "investment vehicles," for large amounts of bitcoin, Bitcoin Cash, Ether, Ethereum Classic, Litecoin, Horizen, XRP, Zcash, and Stellar Lumens. Grayscale also manages the Grayscale Digital Large Cap Fund, a market cap-weighted fund consisting of a basket of the biggest cryptocurrencies by market cap (bitcoin, Ether, XRP, Bitcoin Cash, and Litecoin) using several digital asset reference rates - TradeBlock XBX, ETX, XRX, BCX, and LTX Index 24-hour VWAPs. These trusts, or "vehicles" are passive investment funds, which track the prices of each digital asset in real-time using digital trade algorithms. GBTC specifies on its website that only "accredited investors as defined under Regulation D of the Securities Act of 1933" are permitted to invest in any of their investment vehicles.[18][19]

Grayscale Investments announced that it would add support for Stellar through the "Stellar Lumens Trust" in January 2019.[20] In May 2019, FINRA approved Grayscale's proposal to publicly list shares for an Ethereum-based trust, making it the first publicly-quoted security tied to Ethereum. Grayscale planned on launching trading for shares of the trust under the ticker ETHE sometime in early June 2019.[21]

On August 17, 2020 the company announced that, as a result of their having been made eligible for transfer through the Depository Trust Company, its Bitcoin Cash and Litecoin trusts would begin trading on OTC Markets.[22]

Grayscale Investments began the registration process for new trusts on five cryptocurrencies by incorporating the trusts in Delaware in autumn of 2020. The cryptocurrencies were Chainlink, Basic Attention Token, Decentraland, Livepeer and Tezos.[23]In January 2021, Grayscale Investments incorporated six more trusts for different digital assets, including Polkadot (DOT), Aave (AAVE), Monero (XMR), Cardano (ADA), Cosmos (ATOM), and EOS (EOS). Grayscale's Managing Director Michael Sonnenshein told The Block that although Grayscale had formed trusts for these cryptocurrencies, they were "reservation filings" and did not necessarily mean that Grayscale was planning to launch products for any of them in the future.[24]

In February 2021, Grayscale announced that the Grayscale Ethereum Investment trust would resume the private placement of its shares. The Trust’s private placement is offered on a periodic basis throughout the year, and is now available to accredited investors for daily subscription.[25]

After years of trading at high premiums, in February 2021, the GBTC began trading at a discount, meaning that it traded at a rate that was lower than its net asset value (NAV). Marlton, LLC, an investment management firm with a large stake in the GBTC, sent a letter to Grayscale on April 6, 2021, recommending that the company address this through a modified Dutch auction tender offering, which would mean Grayscale seting a price range at which they would be willing to repurchase shares, allowing shareholders to liquidate holdings by tendering them within that range.[26][27] On April 23, 2021, the GBTC began trading at a record-low discount of -18.92 percent.[28]

On October 18, 2021, Grayscale Investments announced that Grayscale Zcash Trust, Grayscale® Stellar Lumens Trust, and Grayscale® Horizen Trust began trading on the OTCQX® Best Market, the top tier operated by OTC Markets Group Inc., under the symbols ZCSH, GXLM, and HZEN, respectively. They are open-ended trusts sponsored by Grayscale.[29]

On Oct. 06, 2022, Grayscale announced the formation of Grayscale Digital Infrastructure Opportunities LLC (“GDIO”), a private, co-investment entity seeking to buy Bitcoin mining equipment at distressed prices, hoping to profit by selling the Bitcoin earned in the process. Grayscale's affiliated digital asset mining, staking infrastructure firm, Foundry, will manage the day-to-day operations of GDIO. GDIO will be available to accredited investors such as hedge funds and family offices at a minimum investment of $25,000.[30]

Custody[edit]

Grayscale announced on August 2, 2019, that it had selected Coinbase Custody to serve as the custodian for the digital assets underlying its products.[31] The agreement was effective July 29, 2019, and Grayscale had already transferred some assets to the custodian by the time of the announcement. Coinbase Custody is a New York State regulated trust company.[32] Grayscale was expected to transfer about $3 billion in assets to Coinbase Custody over an approximately 12 hour period, one of the largest transfers of cryptocurrency ever.[33]

Key People[edit]

JLN Interviews[edit]

Michael Sonnenshein was a guest on the CryptoMarketsWiki Podcast in 2020.

References[edit]

  1. Access and insight for a changing world. Grayscale Investments.
  2. Grayscale Bitcoin Trust. Grayscale.
  3. Grayscale Investments. Linkedin.
  4. XRP, BCH, LTC & ETH: Grayscale Adds 4 New Crypto Trusts. Coindesk.
  5. ZCash Investment Trust Launches, Expanding Investor Options For Cryptocurrency Exposure. Forbes.
  6. Grayscale announces new fund around a privacy-based crypto. Yahoo Finance.
  7. Brutal bear market for bitcoin doesn’t stop record inflows to this digital asset firm. MarketWatch.
  8. Biggest Crypto Fund’s 40% Premium Evaporates During Meltdown. Bloomberg.
  9. Grayscale Investments® Donates $1 Million to Coin Center and Pledges to Match Donations Up to an Additional $1 Million. GlobeNewswire.
  10. What to Watch as Grayscale and SEC Face Off Over ETF Conversion. Bloomberg.
  11. Crypto Scores Landmark US Legal Win With Grayscale ETF Ruling. Bloomberg.
  12. cite web|url=https://www.wsj.com/finance/regulation/grayscale-wins-lawsuit-against-sec-over-bitcoin-etf-1b305cfa?siteid=yhoof2%7Cname=Grayscale’s Court Win Over SEC Lifts Hopes for Bitcoin ETF Approval|org=The Wall Street Journal|date=August 30, 2023}}
  13. Grayscale Bitcoin Trust’s Step Forward with SEC Filing. Medium.
  14. Grayscale Ethereum Trust Files Form 10 with SEC. Grayscale via GlobeNewsWire.
  15. Grayscale says new development strengthens its spot bitcoin ETF case. Pensions&Investments.
  16. Bitcoin Investment Trust Loses Luster. Bloomberg.
  17. Blow To Bitcoin As U.S. Investment Trust Tanks. Forbes.
  18. Grayscale Investment Products. Grayscale Investments.
  19. Grayscale Digital Large Cap Fund. Grayscale Investments.
  20. Grayscale’s Newest Crypto Investment Trust Will Hold Stellar Lumens. Coindesk.
  21. FINRA approves Grayscale Ethereum Trust for retail. The Block.
  22. Trading to Commence for Grayscale Bitcoin Cash Trust and Grayscale Litecoin Trust. Globe Newswire.
  23. Grayscale May Have Laid Groundwork for 5 More Potential Crypto Trusts. CoinDesk.
  24. Grayscale has incorporated six more trusts, including ones for Polkadot and Aave. The Block.
  25. Grayscale Ethereum Trust Announces Resumption of Private Placement. Globe Newswire.
  26. Investment manager Marlton sends letter to Grayscale pushing for a solution to the GBTC discount. The Block.
  27. Marlton Urges Grayscale Bitcoin Trust (GBTC) Sponsor in Open Letter to Encourage its Parent to Conduct a Modified Dutch Auction Tender Offer. PR Newswire.
  28. GBTC sinks to record low — trading at a 19% discount. The Block.
  29. Three Additional Grayscale Products Now Trading on OTCQX Market. Grayscale via GlobeNewswire.
  30. Grayscale Sets Up Entity to Invest in Bitcoin Mining Hardware. Bloomberg.
  31. Grayscale Selects Coinbase Custody as Custodian. Globe News Service.
  32. Grayscale’s $2.7 Billion in Crypto Assets Will Now Be Held by Coinbase Custody. CoinDesk.
  33. Grayscale To Move Billions In Bitcoin, Ripple's XRP, Ethereum, And Litecoin To Coinbase In One Of The Largest Ever Crypto Transfers. Forbes.