Group Co.
The Door for Institutional Investment in Digital Assets Has Long Been Open. You Just May Not Have Known It.
Traders Magazine Online News, March 26, 2019
It’s not every day, or even every decade, that an entirely new asset class is born. Yet through a combination of computer science, cryptography, economics and network theory, digital assets have arrived and are proving to be an asset class unlike any other. As they transform our global financial infrastructure and challenge modern monetary theory, institutional investors have begun carefully seeking exposure to this potentially high-risk, high-reward opportunity.
Digital assets may fail to achieve what many of the brightest investors and technologists hope they can. However, we think it is more likely that these assets continue to survive and thrive – capturing a share of some of the largest markets in the world (e.g., store-of-value and cross-border payments, which both extend well into the trillions of dollars) and creating business models that democratize information and value in new ways. There is growing proof of this, as both individuals and institutions are now using digital assets for instant, borderless, secure and cost-efficient value transfer and digital wealth storage void of intermediaries. As an added benefit, because these assets offer exposure to unique market opportunities and risks, a high-quality mix can create a diversifying return stream, which can be used to build more efficient portfolios. For many institutional investors with long-term horizons and a mandate to meet the target returns of their beneficiaries, the characteristics of this asset class are too compelling to ignore. Which is why the question is not if more institutions will invest in digital assets, but when?
In order for institutions to jump into what is already perceived as a high-risk asset class, the proper custodial, legal and regulatory frameworks must be in place for the assets they manage. This is a minimum fiduciary and regulatory obligation. Per the Investment Advisers Act of 1940, advisers that have custody of client securities or funds must maintain those assets with broker-dealers, banks, or other qualified custodians. While some institutions have remained on the sidelines due to the “absence” of qualified digital asset custody solutions, others are digging deeper and realizing this is simply not true.
Today, Grayscale Investments offers passive digital asset investment products to accredited investors that meet the regulatory requirements of registered investment advisers. Modeled on the popular SPDR® Gold Shares (Symbol: GLD), shares of the Grayscale investment products are titled securities that can be held with traditional qualified custodians. As such, they fit neatly within the operational, compliance and legal infrastructure of traditional assets, like equities and bonds. Moreover, the investment products reinforce a disciplined and principled investment framework. New digital assets must hold up to rigorous evaluation from legal, audit, tax, accounting, custody, index and other service providers to qualify for Grayscale’s family of institutional-grade products.
Beginning in 2013, we recognized a gap in investors’ ability to participate in this unique investment opportunity. We set out on a mission to build pioneering investment products that remove the barriers to entry to digital assets. That way, investors can focus on the big picture without worrying about the hurdles of expressing their view. Accessing, transacting, and storing digital assets securely amidst evolving cyber, physical, and jurisdictional security threats is a non-trivial exercise that requires significant domain expertise. Combining deep experience in financial markets, asset management, and digital assets with a roster of world-class service providers has enabled us to develop institutional-grade investment vehicles with built-in custody.
As a leader in digital asset investing with nearly $1.0 billion in assets under management, Grayscale offers institutional investors a reliable and secure way to participate in one of the most exciting investment opportunities of the 21st century today.
Matthew Beck, CFA, Director of Investments and Research at Grayscale
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