After a record third quarter, institutional crypto investment firm Grayscale is releasing a publicly-traded security that derives its value from a basket of digital currencies.
Grayscale has released a Q3 report that shows a keen appetite for digital assets from institutions who contributed over a quarter of a billion dollars in new investments over the period.
Most of these funds were committed to Grayscale’s Bitcoin Trust, which raised $75 million in one single day — a figure that would have covered the whole value of the fund just a few years ago.
Institutions turn to altcoins
In line with previous quarters, the bulk of the demand comes from hedge funds based in the U.S. and offshore.
Managing director Michael Sonnenshein, who joined Grayscale from JP Morgan, attributes the institutional demand to marketing campaigns targeted at key financial centers. This includes the viral #dropgold campaign that called on goldbugs to ditch the precious metal in favor of Bitcoin.
"Our team is out on the road with investors and we will descend on a city — we were just in Vancouver a couple of days ago," said Sonnenshein on The Scoop podcast. "We’re actually so busy we either have to divide and conquer as a team to make sure we see everyone or in a lot of instances we’re actually turning down meetings and having to schedule follow up calls or emails because we don’t have enough time while we’re in a given place to see everyone."
Though the Bitcoin Trust remains most popular with investors, other altcoin-based funds are attracting more investment from increasingly adventurous institutions.
Over the last twelve months, 74 percent of institutional funds flowed into Grayscale’s Bitcoin Trust, and 26 percent into the other nine funds offered by Grayscale, which are tied to different cryptocurrencies including Zcash, Ethereum Classic, and Stellar Lumens.
In the third quarter, however, only 67 percent of inflows were directed to the Bitcoin Trust, and 33 percent went into altcoin products.
The Digital Large Cap Fund
With its pioneering Bitcoin Trust, Grayscale made Bitcoin available to institutions and allowed average investors to get Bitcoin exposure in their retirement or brokerage accounts.
And as the latest Bitcoin ETF rejections hit the headlines, Grayscale has announced the release of its own publicly traded cryptocurrency investment product.
The Digital Large Cap Fund has been given the green light from US regulatory body Finra, and will now let even non-accredited investors get exposure to the price movements of a diversified basket of large-cap digital assets, without having to buy, store or manage them.
The new product will be listed on over-the-counter markets and trade under the ticker $GDLCF, standing for Grayscale Digital Large Cap Fund.
As Sonnenshein said at the Ethereum Classic Summit in October, the fund — much like the Coinbase bundle product that was quietly dropped earlier this year — will cater to investors that want to buy cryptocurrency but "don’t know how to choose winners and avoid losers.”
"The idea for that fund was born out of a couple of things," said Sonnenshein. "One, we were starting to encounter investors that were interested in allocating into this space, but thought that they had missed Bitcoin or maybe they thought they missed Ethereum.”
In a similar way to the Coinbase Bundle, the fund uses a "rules-based methodology" to measure market cap against other factors like liquidity and operational requirements and select cryptocurrencies," that constitute the upper 70 percent of the digital currency universe."
In practice, this means around 80 percent of the fund is made up of Bitcoin, 10 percent Ethereum, and 10 percent of smaller cryptocurrencies. As a passive investment vehicle without active management, these assets are rebalanced every quarter.
With this milestone passed, we could soon expect more publicly-traded funds from Grayscale, which has voiced its ambition to list on the public market all ten of its investment products that are currently only open to accredited investors.