Institutions on edge as Grayscale halts Bitcoin and Ethereum trading

Published by Cyber Flows on

Grayscale Investments has been the poster child for institutional cryptocurrency purchases for the better part of a year now. However, the company appears to have halted investments in several of its top cryptocurrency trusts, putting potential investors in uncharted waters.

Earlier this week, a Twitter user shared a screenshot confirming that top crypto asset management firm Grayscale Investments had stopped investments in its top crypto trusts. The tweet confirmed that customers can’t invest in Grayscale’s line of products. This includes its Bitcoin Trusts, Ether, Ethereum Classic, Bitcoin Cash, and Litecoin products.

The same applies to the Grayscale Digital Large Cap Fund. To clear any possible concerns, a spokesperson for Grayscale told industry news sources that the halts had been instituted after the six-month lock-up period for selling recently-purchased shares of the Grayscale Bitcoin Fund is coming to an end.

With Grayscale confirming that the halt is merely a mandatory move, it is worth understanding the implications that this could have on the industry – especially with investors still on the prowl and Bitcoin trading at near-record prices.

Shares of the Bitcoin Investment Trust trade consistently higher than the regular Bitcoin price, primarily due to increased demand from institutional investors.

Even with the 30 percent price premium, traditional investors still find the investment product attractive since they can be traded on existing stock exchanges, transferred to retirement vehicles, and more. There is also the benefit of owning Bitcoin without having to go through the steps involved in holding and managing the asset.

As the Grayscale spokesperson noted, the halt is coming in line with a mandatory lock-up of Bitcoin Investment Shares that were purchased in June. In a recent analysis, Ben Lily of Jarvis Labs explained that shares purchased at that time could be sold to non-accredited investors in the open market, effectively reducing the value of the Bitcoin Trust itself.

Since the fund is so large, there is a significant chance that this drop could spill over to the Bitcoin price itself. There is also the problem of Bitcoin’s price primarily driving rallies – or gluts – in other large-cap cryptocurrencies. So, if Bitcoin drops, it could drag the market down with it.

Lily’s analysis forecasts a possible drop in the Bitcoin Trust’s price, which would make it even more attractive for institutions to buy into it when investments open again soon. It also marks an exciting opportunity for institutions that have been eyeing Bitcoin for a while. Demand for cryptocurrencies from this class of investors has been increasing in 2020. There is every indication that this could continue in 2021.

Several firms – both in the crypto and traditional finance spaces – have bolstered their operations to accommodate institutional crypto investors. With Grayscale possibly causing Bitcoin’s price to drop, this might be the perfect time to buy-in.


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