Grayscale Investments is a leading digital asset management firm that operates the Grayscale Bitcoin Trust and offers a wide range of other institutional-grade crypto-asset investment products.
In the earliest days of Bitcoin, BTC was demonstrating substantial growth as a new and alternative asset. However, for financial institutions wanting to participate, taking custody of physical bitcoins came with significant risks due to the lack of institutional-grade custody solutions and the absence of any regulatory certainty around digital asset investing.
Grayscale Investments was one of the first firms to emerge with an institutional-grade investment product based on BTC back in 2013. Since, it became a leader in regulated digital asset investment products, with the flagship Grayscale Bitcoin Trust (GBTC) having been successfully converted to an ETF in early 2024.
History of Grayscale Investments
Grayscale Investments was founded in 2013 with the launch of the Grayscale Bitcoin Trust. The company was founded by Barry Silbert, founder of Digital Currency Group, of which Grayscale Investments is a subsidiary.
At its inception, the Grayscale Bitcoin Trust was a private trust only accessible to accredited investors; however, by 2015, it had obtained approval from FINRA. From this point, it became publicly listed under the ticker GBTC on an over-the-counter (OTC) market for companies not required to register with the SEC.
In 2017, Grayscale began a long-running effort to obtain approval from the SEC to run GBTC as a regulated exchange-traded fund (ETF), which would open it up to the retail markets. For many years, the SEC declined applications from Grayscale and other would-be issuers, citing concerns about manipulation in the cryptocurrency markets and the risks it could pose to investors.
Grayscale took a leading role in challenging these decisions via the courts. In September 2023, the District of Columbia Appeals Court in Washington issued a ruling that the SEC should not have declined the most recent ETF application, which the SEC declined to appeal further.
In January 2024, GBTC became the first SEC-approved ETF to begin trading in the US, following a landmark approval. GBTC is now one of the largest Bitcoin holders, with a portfolio of over 220,000 BTC as of mid-2024.
Grayscale Investment Products
Grayscale offers three different types of investment products – ETFs, crypto-backed products (such as private placement ones), and a dynamic income fund focused on staking returns.
On its website, the company explains that its investment products follow four stages of development with the aim of eventually achieving fully regulated ETF status.
- Stage 1 is private placement, products that are only open to accredited investors.
- Stage 2 is public quotation, where private placement products can be held or sold via brokerage accounts on the open market but are not SEC-regulated.
- Stage 3 is becoming an SEC reporting company, which means becoming an issuer of securities subject to the reporting requirements of the US Securities Exchange Act.
- Stage 4 is ETF approval.
ETFs
Grayscale offers ETF products based on Bitcoin (BTC) and Ethereum ( ETH) as the only two assets that the SEC has approved for ETF issuance, including the flagship Grayscale Bitcoin Trust (GBTC). For each underlying asset, investors have the choice between the standard fund or the mini fund, with the mini fund offering a lower cost per unit and fee than the standard fund.
Funds trade on both primary and secondary markets. Primary issuance is carried out only with authorized institutional partners, who purchase BTC to invest in the issuance of GBTC shares, which are traded on publicly accessible secondary markets.
Grayscale also issues the Grayscale Future of Finance Equity ETF, which invests in “innovative businesses that are integral in evolving the financial system to build the digital economy.”
Crypto-backed products
Crypto-backed products are offered at stages one, two, or three of the process above, depending on the underlying asset and state of regulatory approval. These products are either single assets, backed by cryptocurrencies or tokens such as LINK, MANA, or SUI, or diversified, focused on certain crypto segments. For example, the Grayscale DeFi Fund invests in a basket of five of the largest-cap DeFi tokens including UNI, AAVE, and MKR.
Grayscale Dynamic Income Fund
The Grayscale Dynamic Income Fund invests in a portfolio of proof-of-stake tokens, including SOL, NEAR, and others. It then stakes these tokens to generate rewards that are distributed among fund investors.
The Grayscale Dynamic Income Fund is only open to accredited investors.
Grayscale Investments essentials
- Grayscale Investments, part of Digital Currency Group, operates the Grayscale Bitcoin Trust, one of the first institutional investment products backed by Bitcoin.
- The company played a leading role in supporting the effort to obtain regulatory approval for Bitcoin ETFs in the US, which paid off in January 2024.
- Grayscale now offers four publicly-traded Bitcoin and Ethereum ETFs, along with a suite of crypto investment products in various states of regulatory advancement.