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Rival cryptocurrencies are similar, he said. “We believe that there is a future state where bitcoin, Ethereum, and other digital currencies coexist as part of the digital currency cohort,” and are “used for different things,” he said.
In spite of Ethereum’s rise, bitcoin remains the leading cryptocurrency for 2020, the report noted. Grayscale Bitcoin Trust, which is Grayscale’s largest product, saw $719.3 million in new inflows in the third quarter, accounting for the lion’s share of the asset manager’s new investable capital.
What’s more, for the first time in the history of Grayscale’s quarterly research reports, the firm found that a majority of its investors were investing into at least two of its cryptocurrency investment products.
More than half of investors (57%) had invested in at least two cryptocurrency products as of the third quarter this year, versus 44% one year ago. When Grayscale started in 2013, only 37% were invested in multiple crypto products.
Fiscal stimulus measures could be driving investors’ temptations for cryptocurrencies, experts say
One major explanation behind cryptocurrency’s rise, Sonneinshein said, is that a finite amount of cryptocurrency provides a buttress against devaluation in a way that government-backed cash reserves can’t defend against.
“I think from our investor conversations, a lot of that is drawn from bitcoin being an asset that has verifiable scarcity, which is an attribute that is really resonating with the investment community, especially against the backdrop of unlimited financial economic stimulus,” Sonnenshein said.
This year saw massive fiscal stimulus measures which bloated the Fed’s balance sheet to more than $7 trillion as of late September, according to Statista.
Phil Bonello, director of research at Grayscale Investments, agreed that fiscal stimulus measures might be driving investors to these cryptocurrency products.
“Anecdotally, it’s clear that investors are concerned about the ongoing stimulus,” Bonello told Business Insider. “It’s not clear if there’s an end in sight. And so I think that that generally has drummed up interest for a digitally scarce asset like bitcoin and the emerging assets around bitcoin.”
To be sure, cryptocurrency still has a long ways to go to compete with fiat currency. Bitcoin’s entire market cap, roughly $212 billion according to CoinDesk, is smaller than most mid-sized asset manager’s individual AUM.
However, the industry continues to make steps to further embed itself in the fabric of traditional finance. Grayscale Investments operates the only two cryptocurrency investment products that report to the US Securities and Exchange Commission — Grayscale Bitcoin Trust and Grayscale Ethereum Trust.
“The fact that [Grayscale Investments] is an SEC-reporting vehicle makes it have the same level of reporting obligation and disclosure as you would see for any other instrument that investors are using,” Sonnenshein said.
He added that the success that cryptocurrencies have experienced in 2020 should repel any aspersions that critics might have on the asset class.
“And while definitively it’s not for every single investor or every single portfolio, it is something that is being accepted as needing to be examined in the context of building a portfolio.”
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