Episode 006

Draper Associates & Grayscale

  • Governance and Guardrails: Grayscale’s Record Inflows & Their Impact on the Market
  • In Conversation With
  • Onchain Reaction

Governance and Guardrails: Grayscale’s Record Inflows & Their Impact on the Market

Crypto investment fund manager Grayscale Investments recently saw the value of its AUM reach $3.8 billion, up from $2.1 billion in May 2019. The average weekly investment into the trust has increased by over 800% vs. Q1 2019’s $3.2 million. Ray Sharif-Askary, director of investor relations and business development at Grayscale, explained how it’s been a record year and record quarter for the firm, noting that they’ve never seen demand like this before for their products. She explained the impact from the pandemic broadly speaking, saying:

“From a broader perspective, COVID-19 and the policy implications especially have really set the stage for bitcoin to be seen as a store of value asset that we had hoped that it eventually would be. You have, institutional investors are taking active long positions in digital assets through our products and it’s because they’re looking for an asset that is scarce and that can be used as an inflation hedge in a world where we’re faced with unprecedented monetary stimulus.”

Grayscale manages the Grayscale Bitcoin Trust and other funds tied to altcoins.

“In Q1 we raised over half a billion dollars across all our products. About $390 million of that was into our bitcoin trust. We also saw about $110 million in the Ethereum product. And I think we’d be remiss not to look at the broader narrative there, which is that we continue to see diversification. Right now about 38% of our investors are allocated to multiple Grayscale products. About a year ago that number was a little under 30%. So it’s certainly encouraging to see investors allocate and diversify within the digital currency asset class just like they would any other traditional asset class.”

Grayscale has $3.8 billion in AUM and the largest gold ETF has approximately $10 billion. Nisa asked when Grayscale will overtake its rival store-of-value asset.

“Over the last 12 months, we actually raised over $1 billion into our 10 products. It would be great to see that demand remain constant and to even increase. I think it’s impossible to say when we’ll overtake the world’s largest gold ETF. But i do know that the idea of bitcoin as digital gold and as a store of value is only becoming more and more prevalent. And so as investors think about finding uncorrelated sources of alpha your guess is as good as mine.”

In Conversation With

Venture capitalist Tim Draper, founder of Draper Associates, is a bitcoin bull and is actively investing in cryptocurrencies. He discussed the dynamic between Wall Street and crypto, saying:

“I have a pretty good sense. Because we’re investors in a lot of great crypto companies, Coinbase, Tezos, a lot of these currencies. And they have had a heyday during the lockdown. Things have gone very well. So here’s what happened. All the early adopters were there and very impassioned and excited about what they were doing. And then the lockdown happened, and then people said, ‘huh, what is this crypto thing? Well maybe I’ll put together a bitcoin wallet, let’s see what happens.’ And then they go, oh my gosh. I can keep all my money in something like this? I don’t have to give it to the banker?’ And so they started to take their money out of banks and put it into crypto. Well naturally that’s going to freak out Goldman Sachs.”

Draper also discussed the destabilization of the world’s fiat currencies and how it is making bitcoin look good.

“If you’re in argentina with the peso you know that it’s going to devalue about 30% a year. Or if you’re in Nigeria with the naira you know it’s going to devalue 50% a year. Or Venezuela with bolivar. They all devalue and everybody knows it and holding onto those currencies is like a hot potato. And they’ve all started to adopt bitcoin as their above-government currency. Well now, I think the US is starting to realize, hey, our currency is also subject to political winds and we are going to need an alternative that doesn’t dilute, that doesn’t force inflation, that is easy, transferrable, open, global, which is better than the dollar — the dollar isn’t accepted everywhere — and it’s transparent, it keeps a perfect record. And so all these people are starting to use it…and they’re pulling their money out of the banks.”

Draper is also bullish on decentralized finance, saying that DeFi is going to challenge the banks.

“So I think DeFi is just, it’s pretty interesting because it’s not only doing all the things that you can do with your bank but it’s doing new things that no bank could ever do — micropayments, airdrops, new ways of moving money around or to different countries, new ways of employing people/of working with people, new ways of helping the…economy, which we need really badly right now because we’ve got 41 million unemployed in the US and about ten times that worldwide. Yeah, I think DeFi is a big opportunity and people should be getting behind it. And you do sort of side-step the bank…The world is changing and it’s going crypto and it’s going toward bitcoin and the blockchain and smart contracts.”

Onchain Reaction

Philip Gradwell, chief economist at Chainalysis, analyzed the onchain data for the week.

  • Trend of low inflows to exchanges continued until Tuesday, June 2, when they doubled as price jumped. An extra  BTC went into exchanges.
  • Bitcoin exchange balances are now clearly increasing. While more bitcoin is being added to exchanges, it is being traded less frequently.
  • “Tether has also seen an increase in balances on exchanges.”
  • Flows between exchanges are down, although derivative exchanges received a net inflow of $58 million.
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