Though investing in cryptocurrencies has proven to be volatile, a flurry of institutional investors has helped improve values in the sector, according to one firm.
Cryptocurrency values have experienced a recent upswing, slowly bouncing back from the 2018 crash that sunk the price of one of the best known digital currencies, Bitcoin, to just over US$3,000 from a high of almost US$20,000 in 2017.
Since the burst of the crypto bubble — which was based on high investor excitement and little else — pushed the entire sector down, coins in the digital currency industry have slowly made gains over the last few years.
In the last month alone, Bitcoin has risen 18.2 percent to a value of US$8,327.87 per coin as of 3:09 p.m. EST. In the same span of time, Ethereum rose 24.9 percent, valued at C$209.83 as of 3:12 p.m.
One industry expert has chalked up the recent increases to a growing number of larger organizations with deeper pockets pooling their money into the sector.
In an email sent to the Investing News Network (INN), Michael Sonnenshein, managing director at Grayscale Investments, said the firm has institutional investors to thank for its recent growth.
“Grayscale is experiencing a growing demand for digital currency access products … with the majority of investment coming from institutional investors — primarily hedge funds — we’re seeing allocations coming from investors with varying mandates and strategies,” Sonnenshein told INN.
Grayscale specializes in fund-based cryptocurrency investing, which includes single asset and diversified funds that give investors exposure to the digital currency market with securities structured similarly to more traditional investment vehicles.
Several of the firm’s other funds, including the Ethereum Trust (OTCQX:ETHE), the Ethereum Classic Trust (OTCQX:ETCG) and the recently listed Digital Large Cap Fund (OTCQX:GDLCF) are also up for public trading, giving investors a variety of opportunities to get into the crypto game.
Sonnenshein said the funds provide an easy way into the digital currency market, allowing investors to avoid the obstacles that come with buying, storing and safely keeping cryptocurrency.
And the recent boost to the sector has been reflected in Grayscale’s results.
In its 2019 Digital Asset Investment Report, Grayscale noted it had an unprecedented year of growth when it came to raising funds.
Through last year, a grand total of US$607.7 million was invested into Grayscale’s portfolio of products, an amount larger than the cumulative investments from 2013 to 2018 combined.
The third and fourth quarter of 2019 proved to be particularly lucrative for the firm. Grayscale saw back-to-back investments totaling more than US$225 million across the two quarters.
A large part of the company’s success was attributed to its Bitcoin Trust, which raked in US$193.8 million in investments in October, the highest amount generated since the trust was established in 2013.
New clients brought in about 24 percent of the capital raised in 2019 for Grayscale, the report said.
In a previous interview with INN, Sonnenshein said cryptocurrency could further benefit from more institutional investors and legacy entities in the space as liquidity increases.
“If you look at the digital currency landscape as a whole, now being US$100 to US$200 billion in total as an asset class, that’s pretty small when you compare it to the market cap of other asset classes,” Sonnenshein said, adding that more capital would help raise awareness and draw larger investors into the fold.
Sonnenshein said the cryptocurrency space could soon jump even further, because the next Bitcoin “halving” is expected to happen in May this year — the third in the coin’s history — and it should aid in the demand for the popular cryptocurrency.
The process slashes the reward for mining Bitcoin in half, leading to fewer new Bitcoins entering circulation. The drop in the number of Bitcoins drives up demand and prices, Sonnenshein said, noting that investors should keep an eye out for rising prices in the next few months.
On Tuesday (January 21), Grayscale announced that its Bitcoin Trust is now a Securities and Exchange Commission reporting company with its shares registered pursuant to sections of the Securities Exchange Act of 1934. In accordance with the SEC requirements, the trust will now begin filing its quarterly and annual reports.
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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.