Grayscale: What is it and what effect does it have on the crypto market?

- 8 minute read

Ted Maas
Ted Maas

✔️ Grayscale is the second-largest holder of Bitcoin after Satoshi Nakamoto, with assets under management totaling $16 billion spread across more than 1750 different wallets.

✔️ Grayscale filed a lawsuit against the SEC after the rejection of its Bitcoin Spot ETF application, alleging that the rejection was arbitrary and discriminatory.

✔️ In June 2022, the SEC rejected the application for a Bitcoin Spot ETF, citing concerns about fraud prevention and investor protection. Grayscale argued that similar surveillance agreements for Bitcoin futures ETFs had previously been approved by the SEC.

✔️ Grayscale achieved a historic victory in court when a U.S. court ruled that the SEC had unjustly rejected the application. The SEC must reevaluate the application, but it has the option to appeal.

✔️ Grayscale has recently submitted an application for an Ethereum futures ETF, hoping to obtain approval from the SEC. The ETF would exclusively focus on Ethereum futures, not direct Ether trading. The SEC's response to this application is still pending.

The fact that cryptocurrencies are volatile is known by now. This volatility is strongly dependent on external factors. Anno 2023, Grayscale - the world's largest cryptocurrency fund - has become an important external factor influencing the cryptocurrency market indirectly. With the lawsuits surrounding Bitcoin ETFs against the SEC, Grayscale is a popular topic in the crypto world.

Table of Contents

  1. What is Grayscale?
  2. The impact of Grayscale on the crypto market
  3. Staying on top
  4. Grayscale is the largest HODLer after Satoshi
  5. Bitcoin ETFs
  6. Grayscale vs. the SEC
  7. Grayscale Wins in Court
  8. Ethereum ETF

What is Grayscale?

Grayscale is crypto's largest fund worldwide and belongs to the hyper ambitious Digital Currency Group (DCG), which was founded by Barry Silbert in 2015. DCG gives its support to more than 175 blockchain-related companies and is the parent company of Genesis, CoinDesk and thus Grayscale Investments, among others.

Grayscale offers market information, investment positions and investment products for the digital currencies they offer. Currently, Grayscale offers 13 different funds in which customers can invest. The largest cryptocurrencies, such as Bitcoin and Ethereum, fall under one of these funds.

Similar to  Anycoin Direct , you can invest in cryptocurrency through a Grayscale fund. Investors can speculate on what the Bitcoin price will do, without having to buy the coins. Therefore, investors do not have to worry about the safety and storage of the digital currency, which is ideal for a novice crypto investor. In addition, Grayscale allows institutional investors to place large orders, unlike centralized exchanges that often lack liquidity.

The impact of Grayscale on the crypto market

To become the largest cryptocurrency fund in the world, Grayscale purchased over 284,000 Bitcoins between June 2020 and February 2021. That is about 127% of all Bitcoins mined in the same period. In total, they now own more than 650,000 Bitcoins. This gives them just over three per cent of all the Bitcoins that will ever be in circulation.

The world's largest cryptocurrency fund logically also has the world's largest Bitcoin fund, called the Grayscale Bitcoin Trust (GBTC). With the hundreds of thousands of bitcoins that they manage, there is a possibility that they could influence the bitcoin market. An example of this may be taking place this month.

This is the case. Since March 2020, the price of Bitcoin started to rise. This led Grayscale to sell many GBTC. However, the shares of GBTC that were issued have a six-month selling lock. This means that the shares purchased cannot be sold for six months.

In December last year, due to Bitcoin's massive rebound, the shares were trading at their intrinsic value. However, since 18 February, Grayscale has decided to trade the shares at a discount to the intrinsic value. This has resulted in a drop in demand.

All this has led to more than one hundred thousand shares being released in recent months. In the coming months, analysts expect the number of shares being released to increase. If these shares are bought out right away, it may have an effect on the price of Bitcoin. In the crypto world, most cryptocurrencies mirror the price of Bitcoin. Should the release of GBTC shares be the cause of a price change, then in essence Grayscale has influenced the entire cryptocurrency market.

Staying on top

With thirteen different crypto funds and holding more than 3% of the total value of Bitcoin, it is safe to say that Grayscale is a key player in the crypto world. Nevertheless, the company is bursting with ambition and plans to expand the number of funds in the near future. Word has it that Grayscale is considering adding coins such as Bancor, Curve, Kyber Network, Polygon, Ren and 0X.

Grayscale currently offers the following thirteen funds:

  1. Grayscale Bitcoin trust
  2. Grayscale Bitcoin Cash trust
  3. Grayscale Ethereum trust
  4. Grayscale Ethereum Classic trust
  5. Grayscale Chainlink trust
  6. Grayscale Litecoin trust
  7. Grayscale Stellar Lumens trust
  8. Grayscale Decentraland trust
  9. Grayscale Horizon trust
  10. Grayscale Basic Attention Token trust
  11. Grayscale Livepeer trust
  12. Grayscale Zcash trust
  13. Grayscale Digital Large Cap trust

Grayscale is the largest HODLer after Satoshi

Interesting fact: Grayscale is the world's second-largest holder of Bitcoin, managing an impressive amount of $16 billion worth of Bitcoin across more than 1750 different wallets. This makes Grayscale a significant player in the crypto world, closely followed by Binance, also holding $16 billion in Bitcoin, and Bitfinex with $5 billion. However, the mysterious Satoshi Nakamoto, the secret creator of Bitcoin, remains the ultimate 'hodler,' estimated to hold between $19 and $25 billion in Bitcoin.

Bitcoin ETFs

In April 2022, Grayscale made a renewed effort to obtain approval from the U.S. Securities and Exchange Commission (SEC) to transform the world's largest cryptocurrency investment vehicle into an exchange-traded fund (ETF) tradable on major Wall Street exchanges. Grayscale, the asset management company, emphasized a specific legal aspect in their attempt to strengthen their application with the SEC for the conversion of their $40 billion Bitcoin Trust into an ETF. This application was reported in a letter sent to the regulator.

An ETF, or Exchange-Traded Fund, is an investment fund traded on an exchange, similar to individual stocks. It's a popular financial instrument that allows investors to access various assets, including stocks, bonds, commodities, and in this case, cryptocurrencies, with the benefits of both mutual funds and stocks.

In June 2022, the SEC rejected Grayscale's application for a spot Bitcoin ETF, citing concerns about fraud prevention and investor protection. The same reason was used to reject dozens of other applications for similar products, including those from Fidelity and VanEck. Grayscale subsequently filed a lawsuit against the SEC, arguing that since the regulator had previously approved certain surveillance agreements to prevent fraud in Bitcoin futures-based ETFs, the same setup should also be acceptable for Grayscale.

Grayscale vs. the SEC

Grayscale filed a lawsuit against the SEC regarding the rejected Bitcoin Spot ETF, claiming that the decision was illogical. Grayscale Investments defended itself against the requirements set by the SEC for the approval of a Bitcoin Spot ETF. This was reported by Reuters, referring to a recently published court document.

The decision was deemed "arbitrary, random, and discriminatory" in the filed document. Although various providers had submitted applications for Bitcoin spot ETFs up to that point, the SEC had not approved any of them.

"The Commission treated spot Bitcoin ETFs with particular harshness based on its view of Bitcoin compared to other types of investments," Grayscale accused the agency led by Gary Gensler. Meanwhile, the case against the financial firm was not the only one the SEC was dealing with.

Grayscale Wins in Court

Grayscale achieved a historic victory against the U.S. SEC. The application for approval of a Bitcoin ETF was unjustly rejected, as determined by a U.S. court.

Market prices reacted positively. The court in Washington ruled that the Securities and Exchange Commission (SEC) had unfairly rejected Grayscale Investments' application. The court ordered that the SEC's decision be reversed. This meant that the SEC had to reevaluate Grayscale's application for a Bitcoin exchange-traded fund. The SEC had the option to appeal. On September 5, Grayscale's legal team sent a letter to the SEC requesting a meeting to discuss the next steps.

Ethereum ETF

Latest update: Grayscale Investments has submitted an application to the U.S. Securities and Exchange Commission (SEC) for a new crypto exchange-traded fund (ETF). In contrast to the series of Bitcoin spot ETFs that are still pending approval, this ETF would be based on Ethereum futures . Documents filed by the company on Tuesday indicate that the fund "will not transact in Ether and will not be required to retain an Ether custodian" but will strictly deal with futures.

We are curious to see the SEC's response this time.