In a report released on October 14th, digital asset manager Grayscale Investments confirmed that it had seen $1.05 billion in capital inflows over the third quarter.
Its flagship product, the Grayscale Bitcoin Trust (GBTC), absorbed $719.3 million worth of bitcoin over this time frame. In aggregate, the Trust holds $4.7 billion worth of bitcoin, or more than two percent of all coins in circulation.
84% of Grayscale's Q3 inflows came from institutional investors, including hedge funds and family offices. 57% of its clients are based offshore, while the rest is located in the U.S.
As to why institutions are increasing their exposure to Bitcoin, Grayscale pointed to two trends: government-endorsed stimulus driving down the value of fiat currencies, and a search for investment yield as other asset classes become overheated.
Grayscale's strong quarter comes after the company went on an advertising spree, purchasing ad spots on mainstream financial media outlets.
The flagship commercial, which aired in August, highlighted how fiat money has devolved over recent years due to governments "printing unlimited amounts of money." The commercial interestingly did not mention the words "Bitcoin" or "cryptocurrency," but instead was meant to act as a "wakeup call that people everywhere should seize what we feel is a once in a generation opportunity," a Grayscale blog post reads.
A week after the commercial aired, Grayscale posted on Twitter that it had seen an influx of capital inflows from clients.
Grayscale's Q3 investment report highlights the fact that institutions are accumulating bitcoin.
Coinkite CEO Rodolfo Novak recently created Bitcoin Treasuries, a platform that tracks institutional and corporate bitcoin holdings across the world. Data on the site indicates it can be proven that institutions and corporations own at least 602,055 bitcoin, or approximately 2.87% of the circulating supply. A majority of these holdings is made up of the Grayscale Bitcoin Trust.
Institutional investment in Bitcoin has increased massively over recent weeks and months as investors have woken up to the need for hedges and alternative assets in their portfolios.
On Tuesday, Stone Ridge Asset Management revealed that it had accumulated $115 million worth of bitcoin, or 10,000 coins, to be exact. Explaining the investment, company co-founder Robert Gutmann said to Forbes that his firm sees "the long term growth of an open-source monetary system - in assets like bitcoin.” He added that the COVID-19 pandemic has forced investors to look at what makes up a balanced portfolio, referencing how Bitcoin acts as a hedge against monetary inflation.
In the eyes of some, the simultaneous accumulation of bitcoin amongst institutional and retail players could trigger a "sell-side liquidity crisis" that will dramatically drive prices higher. Pseudonymous analyst "Light" recently commented:
"Bitcoin is experiencing the beginnings of a sell-side liquidity crisis. It has always been like oil on crack. Production is entirely inelastic, demand meanwhile, is reflexive."
As institutional investors have absorbed bitcoin from sellers, retail investors have been withdrawing bitcoin en-masse from centralized exchanges. This means that on balance, the Bitcoin price may rise at a faster pace.