There are a few companies in the U.S. that help institutions invest into cryptocurrencies. These companies’ behaviours are a good index of institutional sentiments toward crypto.
Amongst others, these companies include Morgan Creek Digital, VanEck, Willshire Phoenix, Grayscale, Bitwise Asset Management and now Fidelity, a well-established asset managers, consulting hedge funds, family offices, insurance companies and so on.
Before the crisis, many, for example, VanEck and Bitwise, had already filed with the SEC and pushed the idea of a legislative framework for crypto to help institutions invest in a new digital asset type in an easier way.
But how did the coronavirus change these companies’ attitudes and the sentiment of institutions toward crypto?
Let’s take a look at Grayscale, Fidelity and Bitwise.
Grayscale cut a record
Grayscale is a digital currency asset manager that sponsors Grayscale Bitcoin Trust (GBTC), the trust that became an SEC reporting company on January 21, 2020.
Before we get the low-down on why this status is important, here is what GBTC basically is. It’s the only fund of its kind and reminds us of popular commodity investment products like SPDR Gold Trust, or a physically backed ETF.
Because GBTC is registered with the SEC, the trust is now possible for investors to buy and sell in the same way as any U.S. security: through a brokerage firm, within tax-advantaged accounts like 401(k)s and IRAs or via OTCQX, the top tier of the OTC Markets Group that trades stocks over-the-counter.
With this new status of their fund, it’s no wonder that in 1Q20, the company raised $503.7 mln, or 83% of total capital accumulated throughout 2019.
It will be interesting to take a look at Grayscale’s 2Q20 report when it’s released, to see how the situation has changed after the current pandemic. But to date, we can see that over the past few months of the first quarter, right after the trust officially became the first digital currency investment vehicle to attain the status of an SEC reporting company, it nearly doubled the previous quarterly high of $254.8 in 3Q19. The majority of investments (nearly 90%) came from institutional investors, dominated by hedge funds.
Based on the fact that on April 23, 2020, Grayscale tweeted an announcement of $2.6 billion under their management, which is $400 million more than in their first quarter 2020 report, we can assume that institutions are continuing to put money into Grayscale’s trusts. And that is with the financial crisis flourishing.
Fidelity provides liquidity for institutional investors
One year ago, Fidelity Investments, a financial asset manager that provides services to institutional investment firms, banks, trusts, family offices and has $8.3 trillion in assets under management has published an interesting report.
According to this report, about 22% of institutional investors already had some exposure to digital assets and said they were open to future investments over the next five years. Seven in 10 respondents cited certain characteristics of digital assets as appealing.
The report also mentioned that financial advisors (74%) and family offices (80%) viewed the characteristics of digital assets most favourably.
The company’s vice president of communications, Arlene Roberts, told TradeSanta that they “will be presenting results of a new study of institutional investors in the coming months” with specific data to share.
We still don’t know what exactly is going on right now on the institutional side of their business during Corona. However, in April 2020, Fidelity Digital Assets connected to ErisX, a crypto derivatives provider, for their institutional clients to have better access to the crypto platform’s spot market and liquidity, and they will continue to “add exchanges and liquidity providers,” according to Tom Jessop, the President of Fidelity Digital Asset Services.
Since ErisX Futures are licensed with the Commodity Futures Trading Commission CFTC, the company seems like an attractive solution for Fidelity’s institutional clients to securely access digital assets within a robust regulatory framework.
In other words, one of the largest brokerage firms in the U.S. is still looking for a legal opportunity to invest in a new asset type, crypto, and this is while the crisis is unfolding.
Bitwise Asset Management is after OTC
Now that Grayscale’s GBTC registered with the SEC hit 388.9 million of inflows in 1Q20, it’s interesting to turn eyes toward Bitwise Asset Management that, amid the Corona crisis, has trod in the steps of their competitor.
Bitwise, the crypto index provider and a crypto asset manager working with individuals, wealth managers, family offices, investment managers and institutions, runs a range of beta funds based on crypto and now has also dipped its toes into the world of OTC markets.
In the note issued on March 27 and seen by Crowdfund Insider, Bitwise has informed investors that the company will be submitting a Form 211 with the Financial Industry Regulatory Authority (FINRA) in order to list Bitwise 10 Index Fund in OTCQX.
It’s worth noting that in October last year, before getting approval for their Bitcoin Trust, Grayscale Investments was also given regulatory clearance to list its crypto asset index fund, Digital Large Fund on OTCQX.
It only makes sense to assume that because Bitwise follows the steps of their competitor, there is a very good chance that this year we will see their index and then maybe even an ETF-like product also approved by the SEC.
According to Bitwise’s representatives, once the index is approved for OTC, the investors will be able to trade it on platforms offered by Charles Schwab or TD Ameritrade, both leading U.S. brokerage firms.
That being said, while the SEC rejects their ETF proposals, Bitwise has tried different strategies and won’t give up on the attempt to strike when the iron is hot, which it is in the Corona times.
That might mean that institutions still show interest in crypto but the lack of legislative vehicles is a significant disadvantage, so whoever gives them a chance to invest in digital money legally will reap the rewards, just like Grayscale did. This is what Bitwise understands and is trying to achieve, too.
To sum up
So, will institutions put their money into crypto after the crisis is over or not?
Based on the fact that this year Grayscale has nearly doubled the previous quarterly high, Fidelity connected to ErisX, a provider of a regulated crypto derivative, and Bitwise has tried to provide a legislative vehicle to institutional investors One way or another, the Corona times look like a pesky slug on the path of institutions to their inevitable adopting of crypto.
Thus, under the circumstances, the current turbulence in the financial markets might only push this trend forward.
However, sceptics among world-class traders are in no hurry to change horses midstream.
For example, Jim Simmons, the founder of the Renaissance Technologies, a hedge fund firm that manages $68 billion, says, “The underlying commodity for these futures transactions, bitcoin, is a relatively new and highly speculative asset. Bitcoin and futures based on bitcoin are extremely volatile, and investment results may vary substantially over time.”
That said, although the crisis in the financial markets initiated by Corona virus might make institutional investors turn to alternatives, such as crypto, there are a lot of obstacles the new asset type has to overcome. Most significantly, it should win the trust of authorities and legislators in such a way that COVID cannot impact.