Ever since Bitcoin and several other cryptocurrencies made their debut there have been mixed emotions about them all over the world. Some have deemed it to be a great replacement to the fiat, some call it digital gold, whereas some of the people have taken a pretty harsh stance against the digital currencies. No doubt cryptocurrencies provide a better way of carrying out monetary transactions, and keep the record of these transactions utterly tamper proof, but there are a number of reasons for the masses to not adopt cryptocurrencies to utilize them to make their everyday payments and transactions.
Following the price hike of Bitcoin in late 2017, the digital currency’s value started declining. The price dropped down almost more than half of the value that it had attained and its price continues to fluctuate, displaying high volatility. This makes cryptocurrency an extremely unstable asset, and the high volatility has scared away most of the investors and miners for the time it could not produce any profit. There are many who do not trust the technology yet, as the image of cryptocurrencies has been thoroughly tainted by the scams that keep erupting in the space.
Blockchain and cryptocurrencies still being just over a decade old, call for new rules and regulations to be introduced to govern the trade of the digital assets. Owing to the fact that this new technology is essentially uncharted and unfamiliar territory for the government they have failed to produce a regulatory framework as of yet. However this is just one of the reasons. Recently, BlockPublisher got in touch with Caleb Chen, a digital currency advocate at Private Internet Access, who shed some light on the subject. He told:
There are definitely elements in/of every government that are firmly anti-decentralization by their nature.
The governments may have not been so welcoming to the cryptocurrencies, as they in one way do deprive them of the control they hold over the economic situation of a country, however there are multiple countries where blockchain based projects are being employed to replace the older versions due to a number of advantageous aspects it holds. Caleb added on:
Governments are still waiting for a solid “example” regulatory framework to magically appear. Smaller countries and state entities have been most willing to experiment with this new technology and give it a chance. There are examples of overly restrictive regulatory frameworks, such as the BitLicense from NY, and there are examples of more considerate frameworks such as those in Bermuda. Once these smaller countries have succeeded, larger countries will draft better and better regulatory frameworks… theoretically. The danger is if a large country or financial entity takes a hard negative stance. But nowadays, even they have opened up to the “underlying” blockchain technology because even centralized entities can benefit from the advance of decentralized technology.
While many of us speculate, when the governments will be able to provide a regulatory framework for cryptocurrencies, the technology still in its infancy has a number of features that many have yet to completely comprehend. Such a technology is naturally complicated for the government to understand. There is a need for them to be educated intensively about it if they are to regulate cryptocurrencies. Until that comes to pass, it is not very likely that cryptocurrencies will receive global adoption and finally shed their association with criminal activity.
Institutional demand for Bitcoin and Ethereum causes Grayscale AUM to nearly triple, reduces exposure to XRP
Grayscale Investments, a New York-based digital currency asset management firm, released its investment report for Q2 2019. The company’s assets under management (AUM), primarily held in its Bitcoin and Ethereum trusts, have almost tripled in the past few months. The growth was largely fueled by institutional demand.
According to the Digital Currency Group (DCG) subsidiary, it currently has around $2.7 billion in AUM, up from only $926 million in AUM in Q1 2019. Grayscale’s report also noted that all ten of the company’s investment vehicles generated “positive performance net of fees.”
Grayscale records strongest quarterly inflows since Q2 2019
The firm’s Grayscale Bitcoin Trust product recorded a quarterly return of 147.6 percent. Meanwhile, the Grayscale Digital Large Cap Fund, which holds large cap digital assets such as Bitcoin and Ether (among others), generated a return of 178.8 percent during Q2 2019.
Notably, the crypto asset management firm registered the “strongest” quarterly inflows since Q2 2018 (appr. $85 million). Grayscale’s report attributes the increased inflows to “in-kind” creations, as inflows almost doubled from $42.7 million in Q1 2019 to $84.8 million in Q2 2019.
Recent crypto market rally “supported by fresh investment”
According to the asset manager, the recent rally in cryptocurrency prices is “supported by fresh investment.” This, despite Grayscale’s Bitcoin Trust not being available to new investors in May and June 2019.
The firm’s report further noted that over 70 percent of Q2 2019 inflows were associated with contributions of crypto assets into the Grayscale line of products in-kind for shares in the company’s trusts. Graysale’s management also mentioned that this was an uptick from the long-term trend.
The company’s inflows into Grayscale Ethereum Trust during Q2 2019 were approximately $14 million and Ethereum Classic Trust inflows for the same time period were of around $5.5 million.
84% of inflows came from institutional investors
As noted in the report, 84 percent of the firm’s inflows came from institutional clients, most of which were hedge funds. Grayscale’s management confirmed that the latest inflows from institutions were the largest since July 2018.
However, Grayscale’s current assets under management are about 20 percent below the firm’s all-time high of more than $3.5 billion during late 2017.
During the first half of 2019, total investments made into all Grayscale products reached $127.4 million with average weekly investments of $4.9 million. Notably, Grayscale’s report stated that the majority, or 80 percent, of all investments came from institutional investors.
In the past 12 months, Grayscale’s products attracted $238.6 million in total investments with a $4.6 million in average weekly investments across all products. The majority, or 75 percent, of capital invested has come from institutions in the past year.
Grayscale’s Ethereum trust product available on OTC markets
On June 20, 2019, Grayscale’s management revealed that its Ethereum Trust (ETHE) product was available for trading on over-the-counter (OTC) markets. The product allows investors to gain exposure to Ether without actually holding the underlying asset, allowing institutions to gain exposure to cryptocurrency.
As noted in the firm’s blog post, the Grayscale ETHE product is the “first U.S.-based publicly quoted security solely invested in and deriving value from the price” of ETH tokens.
On May 23, 2019, Grayscale’s management received permission to list ETH in OTC markets from the Financial Industry Regulatory Authority (FINRA), a U.S. non-profit regulatory body.
Digital large cap fund reduces exposure to XRP
In April 2019, Grayscale reduced its Digital Large Cap Fund’s exposure to XRP from 14.7 percent to 11.9 percent while increasing the fund’s Litecoin exposure from 1.8 to 3.3 percent. Most of the Digital Large Cap Fund is invested in BTC. According to Grayscale’s management, the percent changes in exposure were made based on the firm’s “passive, rules-based” investment strategy.
In December 2018, a report from Longhash revealed Grayscale was the largest institutional holder of Bitcoin, holding at least 203,000 BTC valued at nearly $2 billion at current market prices.
Crypto Firm Grayscale Sees Notable Institutional Inflows in Q2
One of the common critiques that cynics use to bash the Bitcoin and cryptocurrency space is that this whole market is retail-driven. In 2017, this may have been the case. Then, Wall Street was still in the midst of learning about Bitcoin and its ilk and thus made no announcements on the matter.
For some reason, skeptics of this industry have taken this narrative and applied it to 2019. But, Nasdaq, CBOE, CME, New York Stock Exchange, TD Ameritrade, JP Morgan, Ernst & Young, and countless other big names in finance have launched or are working on cryptocurrency products.
And most importantly, a report from industry investment firm Grayscale suggests that institutions continue to siphon fair amounts of capital into this space.
Grayscale’s Crypto Fund Inflows “Dominated” by Hedge Funds
Just like other investors, Grayscale’s clients have also been subject to the fear of missing out. As revealed in the firm’s latest Digital Asset Investment Report for Q2, it secured over $84.8 million in investment during the last quarter, marking the strongest inflows since the true start of the bear market in Q2 of 2018.
Per the report, much of the capital that Grayscale received in Q2 was allocated to its Bitcoin Trust, the firm’s flagship vehicle that trades on American over-the-counter markets. This may be one of the reasons why Bitcoin dominance has rallied in this uptrend, not declined as it did in early-2018. What’s also interesting is that a purported 84% of the $84.8 million inflow was sourced from institutional players, mainly “hedge funds”.
Bitcoin Dominance Rally a Clear Sign of Institutions
This seemingly confirms a report from FN London, which stated that Bitcoin’s rally from $3,150 to over $10,000 was supported by funds, not retail investors.
Fund managers and cryptocurrency executives speaking to the outlet explained that the rapid growth in Bitcoin dominance, which is up to 66% from 33% at the peak of 2018’s mania, is the perfect indicator of renewed institutional investment. Jamie Farquhar, a portfolio manager at NKB Group, said:
“My view of the recent rise in Bitcoin dominance is that much of this move was driven by institutional buyers. Macro managers and high net worth individuals are generally, in my experience, focused almost entirely on BTC.”
In other words, Bitcoin is effectively the favorite cryptocurrency for institutions.
Fidelity Investments’ involvement in this industry corroborates this. For years now, the Boston-based financial services giant has been laser-focused on Bitcoin, with reports revealing the company has been mining BTC for years. Aside from a mining operation, the company also has custodial services and a trade execution desk for Bitcoin, and Bitcoin only.
You can see a similar trend with the cryptocurrency-focused financial vehicles already on the market, or those that are looking to come to market. Look no further than the incessant stream of crypto-backed exchange-traded fund applications. Notice how nearly all of them are 100% Bitcoin, save for a few outliers such as Crypto Crescent’s Bitcoin and Ethereum fund announced earlier this month.
So again, the fact that Bitcoin dominance is shooting higher, even as some altcoin projects have begun to deliver impressive products, only gives credence to the “institutions are here” narrative
Binance CEO Begs to Differ
What’s weird is that Changpeng “CZ” Zhao, the chief executive of Binance, noted that the so-called “institutional herd” is not as present as some may say.
Speaking to Bloomberg, the Chinese-Canadian businessman suggested that Bitcoin’s move to $10,000 and beyond wasn’t mainly catalyzed by your average institutional player.
Instead, Zhao notes that it’s been a combination of retail and institutional investment. Backing this quip, the CZ cited data from Binance, claiming that 60% of all trading volume on Binance is a result of retail players — about the same percentage as it was last year.
Libra branded ‘delusional’ as Senate Banking Committee unleashes hell on Facebook’s David Marcus
Libra seems to be the new cuss word in Washington D.C.
After unveiling Libra and setting up the association to oversee its governance in Switzerland, Facebook probably thought they’d be taking more flights across the Atlantic. However, it looks like the layover in the US Captial is longer than expected.
On July 16, David Marcus, lead of the Libra project and VP of Messaging Products at Facebook, sat before the US Senate Banking Committee to discuss Facebook’s cryptocurrency project, and it wasn’t pretty. Senators from both parties unified with pressing questions about the privacy, security, and global concerns associated with Libra.
This is certainly not the first rodeo for Facebook executives in front of US Congressmen. But, the way the latest hearing went, it certainly won’t be the last.
Senators likened Facebook’s plan of entering the payments realm to a toddler burning the house down, calling Libra a “delusional” goal, and revisiting Facebook’s privacy problems. Arson comments and snide remarks aside, there were genuine concerns that the wide reach of the social media giant, coupled with its entry into the payments realm via a digital asset, would be a sovereign problem and not a case of a private company merely expanding its operations.
Senator Sherrod Brown, who during the Fed Chairman’s appearance before the House Finance Committee on Libra mulled big tech’s efforts to rival big banks, questioned the trust customers had in Facebook after its previous debacles and PR disasters. He opened his address by stating, “Facebook is dangerous,” and called out the social media company.
“Do you really think people should trust Facebook with their hard-earned money?…I just think that is delusional.”
He spoke out against not just Facebook’s payment plans, but also its nefarious advertisement algorithm, its ability to betray journalistic principles and create a facade of news stories. Brown also spoke of the Menlo Park company “manipulating our emotions.” The business model of Facebook, according to Sen. Brown, is to ‘intensify hate’ by the dichotomy of connecting people and making a buck. In short, the motto of Facebook is “Move Fast and Break Thing.”
Senator Brown added,
“We’d be crazy to give them a chance to experiment with people’s bank accounts, to use powerful tools they don’t understand like monetary policy to jeopardize hard-working Americans ability to provide for their family. This is a recipe for more corporate power over markets and consumers.”
Other Senators also reigned down on Marcus, visibly angry about last year’s privacy issues. Chairman of the Committee, Senator Mike Crapo, questioned the 2 billion strong “reach and influence” Facebook has, equating this to a global cause for concern. However, he appreciated Facebook’s endeavor to build a credit system that was cheaper and faster, despite criticizing the means.
The concept of cryptocurrencies coupled with a private company of Facebook’s reputation has made the Senators even more displeased. Senator Thom Tillis said that digital assets are still in the “wild wild west” phase due to a lack of regulations, while still maintaining that Libra could be a “good idea for us to explore.”
Other Senators including Senator Pat Toomey and Senator Mark Warner lauded the idea of blockchain-based payment system, adding that the regulatory backlash against Facebook and Project Libra was a bit “premature” and “misguided,” to some extent.
Throughout the accusations, Marcus maintained a pro-regulatory stance and added that Facebook would work with any governing body, both at home and overseas, to ensure that everything is by the book. Libra will not see the light of day, unless the “regulatory concerns” are addressed, stated Marcus after the hearing.
His post-hearing tweet reiterated the above sentiment,
The conversation was thoughtful and highlighted important issues we, and the @Libra_ Founding Members, will need to address. I want to reiterate here what I said before the Committee: We will take the time to get this right.
— David Marcus (@davidmarcus) July 16, 2019
Marcus is certainly adhering to the lawmakers’ repeated concerns; from the Fed Chair, to POTUS, to the Treasury Secretary and now the Committee, the Libra main-man seems to have his hands full at the moment. With the Senate hearing done, Marcus will sit before the US Financial Services Committee soon. And by the looks of things, his stint in Washington D.C. will go on for a while now. If I were Marcus, I wouldn’t book my flight to California just yet.