Is Grayscale ‘Trying’ To Corner The Bitcoin Market?
Grayscale Bitcoin Trust has been acquiring more bitcoins (BTC) at any given chance that they get. These massive acquisitions have had some investors suggest that Grayscale is acquiring all these coins aiming to corner and monopolize the bitcoin market. But is that the case?
Previous reports indicated that the institution together with PayPal bought more BTC than the miners supplied in November 2020. For years, the crypto space was waiting for institutional money to come into the nascent industry. Up until 2020, many of the large investors remained aloof but all that seems to be changing rapidly.
In 2019, Grayscale reported fund inflows of more than $607 million which was more than it had acquired in the period between 2013 and 2018. At the end of 2019, its cumulative investments reached $1.17 billion. This New York-based asset manager claims to be the biggest worldwide.
Institutions Propel Bitcoin’s Rally
Since the start of 2020, Bitcoin has been surging and in the process, it has attracted many institutional investors. Many believe that the current bitcoin parabolic rally towards $30,000 is underpinned by institutional investors.
A fund manager at Ikigai, Travis Kling, discovered some similarities between bitcoin’s price surges and the entry of new institutional investors.
The price chart of Bitcoin with institutional news. Source: Travis Kling
Kling marked a chart when major institutions like Chase, JPMorgan, Blackrock, Citibank, and Guggenheim spoke positively about bitcoin. On Dec. 1, he commented:
“I call this chart ‘The Traditional Onslaught’. We’ve been talking about ‘The Herd’ for 3+ years. The Herd requires career risk cover. This is that. They are by definition not early adopters, but their pockets are deep & their capital is sticky. #Bitcoin is just getting started.”
Institutional investors are now majorly involved in the bitcoin market. The clash between the institutions like Grayscale accumulating bitcoin and whales selling may have fueled the extreme volatility experienced in the market in December 2020. The flagship crypto experienced wild price swings within hours. At the same time, many indicators suggest that Bitcoin may break above $30,000 in the short term.
Grayscale Reports $19B In Crypto Under Management
Since the turn of this year, Grayscale has been increasing the amounts of crypto assets under management (AUM). On December 28, the digital asset manager passed another milestone, surpassing $19 billion in AUM up from the $16.4 billion it announced a week earlier.
12/28/20 UPDATE: Net Assets Under Management, Holdings per Share, and Market Price per Share for our Investment Products.
— Grayscale (@Grayscale) December 28, 2020
The latest data published by the institution showed that its biggest holdings by far are in bitcoin. At the time, the Grayscale Bitcoin Trust had $16.3 billion in the top crypto asset. The institution’s Ethereum Trust by then had $2.1 billion in ether (ETH) AUM. Grayscale also runs trusts for bitcoin cash (BCH) ($85.5 million), Litecoin (LTC) ($151.3 million), and ethereum classic (ETC) ($72.9 million).
Grayscale Allegedly Dumped Stakes In XLM And XRP
On December 29, reports emerged that the digital asset manager reduced its holdings in XLM and XRP significantly. Data acquired exclusively from Bybt crypto futures trading platform revealed that Grayscale’s XRP holdings dropped by over 9.18 million. That drop brought its total position to almost 26.45 million XRP, worth around $5.77 million.
Also, the firm liquidated more than 9.74 million Stellar Lumens (XLM), taking its total holdings to 9.19 million XLM worth $1.27 million. For now, Bitcoin makes up 87% of the total assets under Grayscale’s management worth $19.26 billion. The move to dump XRP could be as a result of the US SEC filing a $1.3 billion lawsuit against Ripple Labs.
Ripple promises to fight back against SEC’s charges and requested market participants to wait for its side of the story before concluding anything about XRP’s alleged security status. Grayscale may be distancing itself from XRP due to all the regulatory scrutiny focusing on Ripple. But for now, it is still unclear why the firm also liquidated XLM.
The latest moves might just be temporary reallocation strategies, as seen from data indicating that Grayscale increased its XLM and XRP positions after recent price dumps. Jed McCaleb is Stellar’s co-founder and was a part of Ripple’s founding team. His public XRP wallet held at least 251 million coins on December 9. But since early 2016, he has sold hundreds of millions of dollars worth of XRP.
Grayscale’s Impact On Bitcoin Price In The Medium Term
2020 has brought with it institutional investors into the crypto market with most of them going for Bitcoin. Leading the influx of institutions is Grayscale with its GBTC accumulating more bitcoin than was being mined.
In recent months, Grayscale has aggressively continued to add to its reserves to surpass $19 billion in assets under management. If that trend continues, it will help offset any selling pressure from the miners and whales in the medium term.
Last October, the co-founder of 10T Holdings, Dan Tapiero, suggested that bitcoin may face a possible supply crisis as a result of institutional investors buying more than is being mined. Throughout December 2020, miners and whales have been selling while the institutions buy.
The increased demand from the institutions and the limited supply from the miners has caused the price of bitcoin to surge towards $30,000 in recent days. As of December 31, 2020, the flagship has set a record high above $29,300 and it seems like it will head higher in the coming days.
On-chain indicators like the low exchange inflows and bitcoin exchange reserves at the lowest levels since August 2018 may continue offsetting near-term bearishness, pushing BTC price higher.
What Will Happen If Grayscale Continues Acquiring Bitcoins?
Since July 2020, data shows that Grayscale Investments has been acquiring bitcoins at a high rate and since then it does not seem like it will slow down. The firm is a known gateway to institutional investors and it seems like it will not slow down on bitcoin purchases.
On December 23, reports emerged that GBTC had received 12,319 bitcoins within 24 hours. On December 24 alone, it purchased 9,603 bitcoins and the trend has been the same for many days. Grayscale acquired around 34,000 BTC in a 4-day period. By December 31, 2020, analysts and commentators believe that the firm has over 600,000 bitcoins in its holdings.
For weeks now, Grayscale’s purchases alone have started to amount to 10 times the total amount of bitcoins mined daily. That scenario points to the ‘liquidity crisis’ that was described by many experts. Data from CryptoQuant shows that the Bitcoin Miners’ Position Index reached a 3-year high. That means the miners are also selling bitcoin on spot exchanges and over-the-counter platforms.
Bitcoin Miners’ Position Index. Source: CryptoQuant
For instance, two big miner-linked BTC transactions on December 10 were spotted as the Index surged to levels not seen since 2017, according to CryptoQuant. First, 800 BTC worth $14.5 million moved to Binance, and then 11,852 BTC equal to $215.9 million moved to an unknown cold wallet.
Bitcoin miner outflows. Source: Ki Young Ju
Since its inception, bitcoin was developed as a decentralized alternative to rival the centralized traditional financial institutions. However, with the entry of massive institutional investments, many members of the crypto community are now worried that some of them may be out to corner the sector.
Grayscale has been buying bitcoins at a high rate so far surpassing 600,000 bitcoins in its holdings. If it continues with this rate, it would reach over a million which would make it a major player in determining the market sentiment in the bitcoin market.
With a few institutions owning a majority of the available bitcoins, they would easily corner the crypto. To some extent, it would neutralize the decentralized nature of bitcoin which put it at the levels that it has reached currently.