Grayscale Investments, LLC, or “Grayscale”, is a world leader in digital currency investment services within the legacy financial realm. Following Grayscale Bitcoin Trust (GBTC), Grayscale now offers a variety of other crypto investment products. Grayscale is a pioneer in the field of crypto-based exchange traded funds (ETFs). Accordingly, it offers a novel opportunity for traditional investors to gain exposure to a new asset class. Moreover, this means existing investors don't need to learn how to operate the Web3 paradigm or take on custodial responsibilities for their assets. 

In this article, we are going to dive deep into Grayscale Investments, LLC and explore its range of digital services. Also, we will discuss the difference between diversified and single-asset investments. Plus, we’ll explore the journey each financial product must make through Grayscale to become a recognized tradable ETF. 

For readers who would like a primer on the foundations of crypto and blockchain, be sure to see the Moralis Academy blog. For example, our “What is Crypto?” and “What is Bitcoin?” articles are great introductions to the industry. Alternatively, see our Blockchain & Bitcoin Fundamentals course at Moralis Academy to deep dive into the basics of the underlying technology. Browse our Moralis Academy website today to see why we’re the world leader in Web3 education! 

What is Grayscale Investments, LLC?

Grayscale Investments, LLC, or colloquially “Grayscale”, is the parent holding company of two other businesses. These include Grayscale Securities, LLC (“GSS”) and Grayscale Advisors, LLC (“GSA”). GSA offers investment advisory services, whereas GSS is a FINRA (Financial Industry Regulatory Authority) member offering broker/dealer services. Both the GSA and GSS are registered with the SEC (US Securities and Exchange Commission). As such, investors refer to “Grayscale” as an umbrella term for the suite of investment services available across the family of enterprises.

Founded in 2013, Grayscale is an industry-leading, next-generation digital currency investment company. Introducing Grayscale Bitcoin Trust™ during the year of the company’s launch, Grayscale now offers an array of single and diversified asset investment products. Each one of Grayscale’s investment products goes through a four-stage process to ultimately become an ETF (exchange traded fund). Moreover, each investment vehicle must be approved and registered with the SEC during its product lifecycle.

Grayscale prides its ability on recognizing and innovatively designing investors’ demands. Accordingly, Grayscale is a world-leading digital currency investment suite that allows investors within the legacy financial infrastructure to gain exposure to the digital asset markets. To discover how the decentralized financial economy operates, save our “DeFi Explained” article for further reading!

What are ETFs?

An exchange traded fund (ETF) is a form of investment security tracking the price performance of commodities, assets, or a specific index or sector. Operating with a centralized pool of assets, ETFs function similarly to mutual funds. However, unlike mutual funds, ETFs are tradable on the stock market just like any other stock. With this ability comes an abundance of benefits and opportunities for investors and businesses. 

ETFs' stock prices in various Grayscale Investments, LLC trusts.

For example, cryptocurrency ETFs allow traditional investors unfamiliar with crypto exchanges to gain exposure to crypto projects without owning the underlying asset. As such, this drastically lowers any technical barriers to interacting and trading with crypto assets. ETFs remove the need for the time and will to learn how to navigate the novel cryptocurrency paradigm. In addition, as SEC-registered assets, ETFs remove investor concerns regarding regulations. As a result, crypto ETFs present an attractive opportunity for investors to benefit from the emerging new asset class within the legacy financial realm. 

Grayscale Investments Products

With nearly 20 investment products to choose from, Grayscale is at the forefront of introducing cryptocurrency ETFs. Moreover, each digital currency product must follow a four-step lifecycle process. In the end, the digital currency product will become an exchange tradable ETF stock. The process is as follows: private place, public quotation, SEC reporting, and finally, conversion into an ETF. As each Grayscale digital currency product has launched at different times, products vary with their current stage of the lifecycle. 

Blog - Trust Timeline Infographic

After allowing accredited investors access to an asset in the private placement launch, the asset will become available to the public. This allows initial investors to sell shares on a secondary market. Plus, public quotations allow price exposure of an asset to accredited and non-accredited investors. Following the demand and success of a public quotation, Grayscale “voluntarily convert… publicly quoted products into SEC-reporting companies, which exceed standard reporting requirements”. With the additional security and transparency for investors, Grayscale works with the SEC to convert the digital product into an exchange traded fund (ETF). At present, the SEC has yet to approve a spot digital currency ETF (real-time price exposure). However, it has approved several Bitcoin futures ETFs. 

Grayscale Single-Asset Investments

The Grayscale investment product suite operates differently from traditional exchange traded funds (ETFs). Each investment product has a trust with a pool of funds from accredited investors participating in the "private place" phase. Each pool of funds is exclusively purchasing Bitcoin (BTC). For example, the company’s first product, Grayscale Bitcoin Trust™, trades under the ticker “GBTC”, representing shares tracking the price performance of BTC. According to "fintel.io", the latest number of shares in the GBTC trust is 34,217,850 shares. Further, these are held by more than 100 different institutions. Each GBTC share represents precisely 0.000943275 BTC. 

Blog - List of Investment Products such as Grayscale Bitcoin Trust

The GBTC trust trades like a closed-end fund monitoring price action via CoinDesk's Bitcoin price index (XBX). As a result, GBTC can sometimes trade at a premium or discount to its underlying asset, BTC. For inexperienced investors, this could detract from the overall return on investment. However, understanding how economic cycles work, market psychology, and arbitrage opportunities can be an excellent opportunity to enhance an investor's total return. Moreover, with an annual management fee of 2%, it’s easy to see why Grayscale Bitcoin Trust is so popular. It achieved a roughly 170% year-on-year increase in assets under management (AUM) between 2020 and 2021. Grayscale Bitcoin Trust recently peaked with an AUM of $43 billion, according to an article from CoinDesk

Following the successful launch of Grayscale Bitcoin Trust™, Grayscale later launched Grayscale Ethereum Classic Trust™, Grayscale Zcash Trust™, and Grayscale Ethereum Trust™ in 2017. All other single-asset investment products operate the same way as the Grayscale Bitcoin Trust model. At the time of writing, there are 14 different single-asset investment products from Grayscale comprising a range of different crypto projects, each with its own utility in Web3. 

Grayscale Diversified Investments 

Grayscale's diversified investment product suite operates in the same way as the single-asset investment products. Plus, each product must go through the obligatory lifecycle stages before achieving ETF status. However, instead of representing the price movements of one crypto asset, the diversified products track the price movement of a collective of crypto projects. 

Grayscale Smart Contract Platform Ex-Ethereum Fund Weightage Graphic

For example, Grayscale® DeFi Fund is an investment product allowing investors to gain exposure to several of the top-performing DeFi projects simultaneously. As such, the trust fund contains pools of crypto assets, including Uniswap (UNI), MakerDAO (MAKER), and Yearn Finance (YEARN). Each project holds a different weight within the trust fund. For instance, UNI is the leading project (42.3%), Curve Finance (CURVE) is the second (17.47%), and then Aave (AAVE) is the third (13.12%). 

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Another diversified asset investment product is Grayscale® Smart Contract Platform Ex-Ethereum Fund. This product offers investors the ability to gain exposure to emerging smart contract blockchains and their native tokens. As Ethereum is substantially larger than other prominent smart contract projects, the investment product excludes the leading smart contract chain. However, investors can gain price exposure to other popular blockchains, including Solana (SOL), Cardano (ADA), and Avalanche (AVAX). Plus, Grayscale® Smart Contract Platform Ex-Ethereum Fund includes Polkadot (DOT), Cosmos (ATOM), and Polygon (MATIC) - although strictly speaking, Polygon is an Ethereum layer-2 solution!

The most popular diversified investment product by far, with over $440 million in assets under management (AUM), is Grayscale® Digital Large Cap Fund. That fund comprises a variety of top crypto projects. Plus, the majority of these are featured in the top 20 by market cap. Overall, most of the weight is in Bitcoin (60.05%) and Ethereum (28.42%). Other assets include Chainlink (LINK), Bitcoin Cash (BCH), and Litecoin (LTC).

The Grayscale® Future of Finance ETF (GFOF)

Grayscale’s first successful investment product to complete the lifecycle and achieve ETF status is the Grayscale Future of Finance ETF. The ETF sits in its own category monitoring the price action of public businesses, “shaping the future of finance”. Accordingly, this includes PayPal Holdings Inc, Galaxy Digital Holdings Ltd, Block Inc, Hive Blockchain Technologies Ltd, and Coinbase Global Inc. Also, the Future of Finance ETF features crypto mining companies such as Hut 8 Mining Corp and Bitfarms Ltd/Canada.

Blog - The Grayscale Future of Finance ETF

For investors keen to be a part of the infrastructural side of the evolution of finance and technology, Grayscale is a great first step. The Grayscale Future of Finance ETF (GFOF) tracks stock performance via the Bloomberg Grayscale Future of Finance index. Plus, GFOF is available to trade now on the New York Stock Exchange (NYSE) via investors' brokerage accounts.

Investor Access

Some of the investment products mentioned above are currently only available to accredited investors as a private placement. This includes Grayscale® Chainlink Trust, Grayscale® Decentraland Trust, Grayscale® Filecoin Trust, Grayscale® Livepeer Trust, and Grayscale® Solana Trust. Also, this includes two of the three diversified investment products, including Grayscale® Decentralized Finance Fund and Grayscale® Smart Contract Platform Ex-Ethereum Fund.

Blog - Lifecycle of a Grayscale Investments, LLC's Grayscale Product Infographic

Private placements are open periodically throughout the year. Plus, there are various rules and restrictions for private investors. This includes a minimum holding period (ranging between six months to one year) and a minimum investment amount of at least $25,000. Moreover, for Grayscale to consider an accredited investor, they must earn a minimum of $200,000 for the previous two years. Also, investors must provide sufficient evidence that they anticipate achieving or exceeding the minimum expected income in the coming year. Alternatively, high net worth individuals with a wealth value exceeding $1,000,000 (minus the primary residence and any outstanding debt) will also be considered. Needless to say, it is only a select elite few who can access Grayscale's financial products first. 

However, one could argue that it is better for the wealthier to “test out” the new investment vehicles. Only after a product proves viable will it become publicly available to all investors in the "public quotations" phase. Plus, with public quotations comes far fewer restrictive investment parameters. For example, there is no minimum investment amount or minimum holding period. Also, when Grayscale products become public quotations, they are available throughout the trading day at investors’ local brokerage accounts.

Why Use Grayscale?

For traditional investors wanting to dip their toes into the crypto waters but without making a full commitment, Grayscale is a perfect solution. Also, Grayscale presents a valuable resolution to many investors’ fears surrounding compliance and regulation of crypto assets. Investing in Grayscale digital currency products is a brilliant way for new investors to understand the volatile and "buoyant" nature of the crypto market. Moreover, investors can do so without learning how to navigate crypto exchanges or Web3 wallets.

Blog - Grayscale AUM since Inception Graph

Another benefit of using Grayscale Investments, LLC is its commitment to regulatory compliance and transparency of operations. Exchange traded funds (ETFs) should operate with full deliverability of underlying assets. This means that a company physically owns and is custodial of every asset each ETF represents. Conversely, some ETFs representing gold and silver (such as GLD and SLV) do not. The iShares Silver Trust prospectus states, “each share represents a fractional undivided beneficial interest in the net assets of the Trust”. The remainder of the share is completed with futures (derivatives) contracts. 

As such, if a black swan event triggers a “run on the fund”, two investors could theoretically attempt to redeem the same share of the underlying asset. However, Grayscale is pretty transparent regarding its assets under management (AUM) and systematically reports its holdings of underlying assets. Moreover, as a digital currency investment fund, all of Grayscale’s transactional activity for underlying crypto assets remains immutable on the blockchain! To understand on a deeper level how this works, save our “Blockchain Explained” article for later reading.

Exploring Grayscale Digital Currency Investments - Summary

Since 2013, Grayscale Investments, LLC has become a pioneer of digital currency financial products and is at the forefront of developing crypto exchange traded funds (ETFs). As a result, Grayscale is broadening the horizons of traditional investors, presenting an attractive and seamless welcome to the realm of cryptocurrencies. Moreover, after completing a product lifecycle, enduring private and public rounds before SEC registering, Grayscale's investment products will convert into an ETF. 

Blog - Graysale Digital Investments

Therefore, investors familiar with traditional brokerage accounts can trade the price action of crypto assets on the regular stock exchange. Accordingly, this brings many benefits to investors unfamiliar with crypto, including removing the responsibility of ownership. Furthermore, crypto ETFs reduce technical hurdles and fears of legacy investors wanting to learn more about cryptocurrencies. 

For readers wanting to learn about the safest ways to get their hands on Bitcoin, see our “How to Invest in Crypto” article next! Alternatively, our Crypto for Beginners course at Moralis Academy offers video-guided, expert-led lessons to create an exchange account and store assets offline. Check out the number one Web3 development and blockchain education suite at Moralis Academy today!