- The New York-based firm raised a record $330 million this year, mostly from institutional investors — that’s more 13 times its fundraising total from this time last year and the most in its five-year history.
- Bitcoin’s 55 percent price drop presents a more affordable entry point compared with the $19,000 price tag last December, Grayscale executives say.
- “Investors are taking the pullback as an opportunity to increase their exposure,” says Michael Sonnenshein, managing director of Grayscale Investments, which manages $1.5 billion in customer assets.
Bitcoin prices continue to drag lower this year as retail interest fizzles. But institutional investors seem to be picking up that slack, and led the world's largest digital currency investment firm to notch record inflows this year.
New York- based Grayscale, a subsidiary of Digital Currency Group, brought in $81.1 million in total investments for the third quarter, according to a company report published Thursday. The 33 percent uptick from the previous three months brings Grayscale's inflows for the year to $330 million, its strongest year-to-date total since the firm started five years ago. At this time last year, the firm had raised a total $25.4 million by comparison. The firm now has $1.5 billion in customer assets.
"Bitcoin prices doing nothing but go down the entire year has not deterred our existing clients from putting more capital to work," Michael Sonnenshein, managing director of Grayscale Investment, told CNBC. "Asset inflows are really strong despite these price declines."
Of those inflows, roughly 70 percent were from institutional investors, meaning hedge funds, pensions or endowments. Grayscale's nine cryptocurrency products are only available to accredited investors, not retail buyers who helped boost prices 1,300 percent last year. Grayscale's other clients are mostly high net-worth individuals or family offices.
Despite the rise of smaller alternatives like ether or XRP known as "alt coins," bitcoin is still "king" of cryptocurrencies for investors, Grayscale said,
In the third quarter, 73 percent of inflows were into the Bitcoin Investment Trust, which trades on over the over-the-counter markets under the ticker GBTC. Despite being "king," bitcoin is still down more than 55 percent this year and was trading near $6,300 Thursday, according to data from CoinDesk.
Sonnenshein, a former J.P. Morgan associate, said the slump has been positive for those waiting for a lower price after bitcoin's climb above $19,000 last December.
"Investors are taking the pullback as an opportunity to increase their exposure," Sonnenshein said. "The price has not slowed down the pace of investments — it's actually caused us to broaden our relationships."
Not only is there more interest from institutions, there's more understanding, Sonnenshein said. Grayscale is no longer teaching "Bitcoin 101" during meetings, he said. Instead, conversations tend to be focused on appropriate allocation sizes, what's going on with scaling, transaction growth and much more "thoughtful dialogue around the state of the industry."
Although it didn't quantify it in the report, Grayscale said it did see a "slight deceleration" of investments coinciding with the "summer slowdown." The Grayscale Bitcoin Investment Trust, or GBTC, has historically traded at a premium to bitcoin and is down about 70 percent this year.
Institutions had mostly stayed on the sidelines during the cryptocurrency and initial coin offering mania of 2017. Security, news of fraud and regulatory uncertainty were among the major deterrents. But historically careful investors are slowly embracing the new industry.
Yale endowment's widely followed chief investment officer David Swensen has invested in at least two venture capital funds that deal in cryptocurrency and its underlying technology blockchain. While it's not clear that those investments are in bitcoin itself, the reports were seen as a bullish sign for the industry's future. Other Wall Street incumbents like Fidelity and Nasdaq have also entered the market with various partnerships and cryptocurrency products.