Recent reports show institutional investors adopting cryptocurrency in Q1 2020. During a time of global uncertainty in traditional markets, investors had great interest in diversifying in digital assets, which have historically been uncorrelated to traditional markets.
According to a Q1 2020 report by Grayscale Investments, institutional investment grew significantly during a time of global volatility and uncertainty. With COVID-19 essentially shutting down the global economy, investors were taking a “tactical” approach by on-boarding digital assets into their mix. Grayscale Investments manages $2.2 + billion and is labeled as the largest asset manager in the digital currency space. Grayscale currently offers 10 different investment products. With a majority of their products being trusts, it’s eliminating the need for investors to worry about buying, safekeeping, and storing digital assets. Grayscale offers individual trusts that focus on popular cryptocurrencies like Bitcoin, Ethereum, Litecoin, Stellar, XRP, and others.
Hedge Fund Dominance
According to the report, Hedge Funds were the biggest group of institutional investors making a splash into digital assets. In Q1 2020, $503.7 million of fresh capital poured into Grayscale Investment products. Hedge Funds accounted for 88% of the new inflows. Grayscale mentioned that this was the largest quarterly figure in history. The previous quarterly high was in Q3 of 2019. During this time, the firm raised $254.8 million. The output in Q1 2020 was nearly +97% higher than the previous milestone in 2019. During traditional market turmoil, Grayscale Investments continues to increase their AUM ( assets under management ). Annualized AUM growth now hovers around +186.5%.
All About Bitcoin & Ethereum
As discussed above, Grayscale Investments raised $503.7 million in Q1 2020. A majority of this capital was being deployed into Bitcoin and Ethereum. According to the figure below, it breaks down the exposure by product. We can quickly see that Bitcoin and Ethereum have been on institutional radar. During Q1 2020, altcoins like XRP, Stellar, and Litecoin saw little activity if any.
Retail & Institutional Have Different Taste
Bitcoin and Ethereum are seeing significant exposure among Grayscale products. It seems like institutional and retail investors differ in this spectrum. According to a previous article by Visionary Financial, studies were showing more investor interest in altcoins. According to the report, it was mentioned that “among customers with at least 5 purchases, 60% start with Bitcoin but just 24% stick exclusively to Bitcoin. In total, over 75% eventually buy other assets.” On retail heavy exchanges like Coinbase, you’re seeing investors take additional risk by investing in altcoins. On the flip side, Grayscale is seeing institutional investors putting more faith into the 2 largest digital assets.
Institutional Investors De-Risking
As mentioned above, COVID-19 essentially shut down the world economy and created all sorts of volatility. Grayscale investors had the ability to de-risk their investment portfolios with digital assets like Bitcoin and Ethereum. The Federal Reserve has practiced quantitative easing, injecting trillions into the market to keep the economy afloat. With the Fed “promising” unlimited stimulus to stabilize the economy, many investors fear strong inflation in the near future. This has fueled the interest in digital assets like Bitcoin among portfolio managers and Wall Street. In recent developments, hedge fund veteran Paul Tudor Jones stated that “My bet is it will be bitcoin’ as the best inflation hedge.” Bitcoin recently surpassed its 3rd “halving” in which its annual inflation level was slashed. With the average global annual inflation level sitting around 3.6%, Bitcoin is now a differentiator since its annual inflation level hovers around 1.8%.
Consequently, investment performance across most sectors has been poor in 2020. Among the top 11 U.S sectors, technology is the only sector with a positive return year to date. Institutional Investors at Grayscale have had the optimal opportunity to de-risk their portfolios during global turmoil. We can take a quick look how the Bitcoin and Ethereum trusts at Grayscale have performed compared to traditional markets. Unless you were “long volatility” in 2020, there hasn’t been a better place to be. Based on the data from Grayscale, the ETH trust has seen +277% growth year to date ( market price valuation ) , and the Bitcoin trust has witnessed nearly +29% growth year to date.
Millennials Want A Piece Of Grayscale / Bitcoin
Institutional Investors aren’t the only folks expressing interest in Bitcoin and Grayscale. According to a study by Charles Schwab in 2019, the millennial generation was allocating exposure to Grayscale in their 401Ks. As we can see from the figure below, the millennial generation has significant interest in the Grayscale Bitcoin Trust. More importantly, this trust is seeing higher interest levels than some of the largest stocks in the world like Netflix, Disney, and Microsoft. With millennials being on pace to receive trillions from baby boomers in the future, companies like Grayscale are paving the way for global adoption in digital assets.
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