The current “crypto winter,” or digital currency’s sharp contraction and prolonged low price, began in the second quarter of this year. This is his fifth market since 2017 and has already seen some novel and dramatic developments. But every bearish brings new opportunities. It often comes from elements that don’t regularly appear in headline news. The same applies to cryptocurrencies. Significant technological innovations and other milestone advances in the large space present new and compelling ideas for investors, including institutional investors who prefer traditional asset classes. Michael Sonnenschein, CEO, Grayscale InvestmentsWe spoke to him about how smart investors can seize the benefits of the current crypto winter.
Have you seen how investors are weathering this latest digital currency downturn?
Michael Sonnenshine: Many investors have experienced the crypto winter before, but unsurprisingly, some are new to it. Overall, their actions have not shunned crypto on the basis of sustained low pricing, even in a very challenging macro environment affecting all types of investments. What we have seen this crypto winter is that investors have a firm belief in crypto, its endurance, and its future. Many people are using this period to buy assets at lower prices and average out their investments, while others are looking to diversify, really consider their portfolios, and invest in what they would otherwise gain in other circumstances. I’m looking for an opportunity that didn’t exist.
There is a lot going on in crypto right now following the FTX bankruptcy and subsequent contagion. What are you hearing from investors about this situation?
This has been a difficult time for many in the cryptocurrency industry, but I am very optimistic about the future of the industry, the business of Grayscale, and the opportunities for investors. I know you have deep convictions about the future. In light of recent market conditions, investors are seeing a renewed appreciation for Grayscale’s established, regulated and transparent business operations and the best choice for gaining safe, long-term exposure to digital assets. We share the belief that the Grayscale product suite provides
And 2022 saw a lot of positive developments…
yes. Many successful milestones have occurred during this crypto winter, including upgrading Ethereum from Proof of Work to Proof of Stake and continuing tremendous activity and development on various digital asset protocols. It is important to note that there was Other significant progress. Many developments taking place in and around the ecosystem, whether based on what is being built, new use cases, innovations in mining, or new entities involved in the space, the I think it contributes to effectiveness. As financial services, incumbents, and other institutions. Many investors are recognizing the key achievements and the significant long-term benefits they bring, which gives them the confidence to continue expanding their participation in the asset class. We recognize that lower prices do not mean there are no new and interesting opportunities to deploy capital.
Speaking of which, Grayscale launched a new product in October, Grayscale Digital Infrastructure Opportunities LLC (GDIO). What is its main purpose?
GDIO is a new operating company providing pioneering services to the investment community. It aims to allow investors to earn income from Bitcoin infrastructure and mining without having to do the mining themselves. Investors can purchase units in her LLC, and the funds raised by the LLC will be used to purchase hardware. This hardware will, among other features, actually mine Bitcoin and programmatically sell it in US dollars with the aim of distributing a portion of the proceeds to shareholders. GDIO is therefore an income-oriented investment that provides investors with exposure to digital assets. This allows you to build a more balanced digital asset portfolio. And the reaction from investors has been very positive.
What inspired GDIO?
Many investors have already made core allocations to Bitcoin and Ethereum, but haven’t had the opportunity to invest in the underlying infrastructure of cryptocurrencies, especially mining. Considerable technical know-how. As such, he designed GDIO as a mechanism to provide this investment opportunity without the need to purchase expensive equipment or perform heavy computing. This is also a first for the investment community.
Additionally, we have seen many other investors, especially on the institutional side, who want access to digital currency but do not want to hold it directly. but usually focus on infrastructure. GDIO allows you to participate in the cryptocurrency infrastructure.
At its core, GDIO is an investment in distressed infrastructure, which is not unusual for investors who make these types of investments in traditional infrastructure. In much the same way Grayscale was innovative in lowering the barriers to accessing digital assets in the form of security, it really lowers the barriers for these investors to access cryptocurrencies. This is a countercyclical investment opportunity that we find exciting.
When it comes to mining infrastructure, crypto winter has caused bitcoin miners to operate more efficiently. Are investors also playing a role in this evolution?
definitely. We are in the introductory phase of digital asset investing with an unprecedented understanding and appreciation of what Bitcoin mining is. This is not only the process by which new Bitcoins are circulated, but it is also the element that allows transactions on the Bitcoin network to be verified and confirmed. Currently, many investors believe that mining is Secure When provide value One cannot work without the other for an investor-held asset like Bitcoin. They are inextricably linked.
With so many investors paying attention to this now, we are doing more scrutiny to determine if miners can financially survive the low price environment. There is no doubt that in the last Bitcoin price hike, there have been miners with a lot of obligations: too much debt, too many orders, too much space in real estate and facilities. In a low-price environment, it is clearly significantly less sustainable. As such, investors are paying more attention to the financial health of their Bitcoin miners.
This is not an offer to sell or the solicitation of an offer to buy securities in any jurisdiction in which such offer or solicitation would be unlawful, nor does it constitute a sale of securities in any jurisdiction in which such offer, solicitation or sale is made. may become illegal prior to registration or qualification under the securities laws of
Grayscale Digital Infrastructure Opportunities LLC (“GDIO”) is an operating business and not a registered investment company under the Investment Companies Act. Grayscale believes that GDIO is not required to register under such legislation. As a result, investors do not receive the regulatory protections offered to investors in investment companies. Further, GDIO is not a registered investment advisor or broker-dealer. GDIO does not provide investment, legal or tax advice.
GDIO does not hold or trade in commodity interests regulated by the CEA as governed by the CFTC. Further, Grayscale believes that GDIO is not a commodity pool for purposes of his CEA, and that Grayscale, as a commodity pool operator or commodity trading advisor in connection with the operation of GDIO, is not subject to regulation by the CFTC. As a result, investors will no longer receive the regulatory protections provided to investors in CEA-regulated products or commodity pools.