Is Crypto Winter creating opportunities for traditional investors?

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The current crypto winter, or an extended period of sharp contraction and low digital currency prices, began in the second quarter of this year. This is the fifth the market has seen since 2017 and it has already produced some new and quite spectacular developments. But every bear brings new opportunities, often from things that don’t regularly appear in the headlines, and the same goes for cryptocurrency. Critical technology innovations and other major advancements in the massive space are presenting compelling new ideas for investors, including those in the institutional community who prefer traditional asset classes, according to Michael Sonnenshein, CEO of Grayscale Investments. We spoke with him about how cautious investors could seize the benefits of the current crypto winter.

How have you seen investors navigate this latest digital currency downturn?

Michael Sonnenshein: Many investors have experienced crypto winters before, although there is understandably a subset for whom this is their first. Overall, the behavior shows that they don’t mind crypto based on a sustained price decline, even one that occurs in a very challenging macro environment that impacts all types of investors. investments. What we’ve seen over this crypto winter is that investors have stuck to their beliefs about cryptocurrency, its sustainability, and its future. Many used this period to buy the asset at a lower price and reduce their investments on average, while others diversified, really took stock of their portfolios and looked for opportunities they did not have in other environments.

There’s a lot going on in crypto right now after the FTX bankruptcy and subsequent contagion. What do you hear from investors about this situation?

While this has been a difficult time for many in the crypto space, I am deeply optimistic about the future of this industry, Grayscales activity, and the opportunity for investors. We know that our investors have a deep belief in the future of crypto. In light of recent market conditions, investors shared a renewed appreciation for Grayscales’ established, regulated and transparent business operations and the belief that the Grayscales product suite provides an optimal choice for gaining secure, long-term exposure to assets. digital.

And there has been a lot of positive progress in 2022

Yes. Importantly, we have achieved many successful milestones during this crypto winter, such as upgrading Ethereum from proof-of-work to proof-of-stake, continuing business and a Considerable development around different digital asset protocols and other criticisms. advances. I think the many developments taking place in and around the ecosystem have lent validity to the asset class, whether based on what’s being built, new use cases, mining innovations or new entities involved in the space, such as financial services, incumbents and other institutions. Many investors are aware of the major achievements and the significant long-term benefits they will bring, which has given them confidence to continue expanding their stake in the asset class. They recognize that just because Bitcoin prices are lower doesn’t mean there aren’t new and exciting opportunities to deploy capital.

Speaking of which, Grayscale launched a new product in October Grayscale Digital Infrastructure Opportunities LLC, or GDIO. What is its primary objective?

GDIO is a new operating company bringing a pioneering offering to the investment community. It aims to allow investors to generate revenue from Bitcoin infrastructure and mining without having to do the mining themselves. Investors can buy units of the LLC, and the capital it raises goes into buying hardware that, among other functions, will actually mine Bitcoin and programmatically sell it for US dollars with the goal of redistributing some of the profits to shareholders. GDIO is therefore an income-oriented investment that provides exposure to digital assets to investors. This allows them to build a more comprehensive portfolio of digital assets. And the reception from investors has been really positive.

What inspired GDIO?

We have found that many investors have already made their basic allocation to Bitcoin or Ethereum, but have not had the opportunity to invest in the underlying cryptocurrency infrastructure, and, in particular, the mining which is a complicated process that requires expensive and bulky equipment and takes quite a bit of technological know-how. So we designed GDIO as a mechanism to give them this investment opportunity without the need to purchase expensive equipment or perform heavy calculations, which again is a first for the investment community.

Additionally, we were seeing many other investors, especially on the institutional side, who would like to have access to digital currency but do not want to hold it directly. These people have avoided crypto, but they generally look at infrastructure. GDIO allows them to participate in cryptocurrency infrastructure.

Essentially, GDIO is a distressed infrastructure investment, which is no stranger to investors who typically make these types of traditional infrastructure investments. This really lowers the barrier to accessing cryptocurrency for these investors, similar to how Grayscale has been innovative in lowering the barrier to accessing digital assets in the form of security. We think this is an opportunity to invest counter-cyclically, and an exciting one.

When it comes to mining infrastructure, the crypto winter has forced Bitcoin miners to operate much more efficiently. Do investors also play a role in this development?

Absolutely. We were at an adoption phase of investing in digital assets where there has never been a greater understanding and appreciation of what Bitcoin mining is. Not only is it the process by which new Bitcoins come into circulation, but it is also the element that helps verify and confirm transactions on the Bitcoin network. Many investors now recognize that mining is a mechanism that secures and provides value to the assets that investors hold, such as Bitcoin, and one cannot work without the other; they are inextricably linked.

With so many investors now aware of this, they are paying much more attention to miners to determine if they can financially withstand a lower price environment. During the last bitcoin price spike, we certainly saw some miners taking on too much of an obligation, whether it was too much debt, too many orders, or too much real estate space or facilities. This has obviously become much less sustainable in a lower price environment. Investors are therefore paying much more attention to the financial health of Bitcoin miners.

Learn more about GDIO and the evolving opportunities in cryptocurrency.

This is not an offer to sell or the solicitation of an offer to buy securities in any jurisdiction where such offer or solicitation would be unlawful, and there will be no sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

Grayscale Digital Infrastructure Opportunities LLC (GDIO) is an operating business and is not a registered investment company under the Investment Company Act, and Grayscale believes that GDIO is not required to register under this law. Accordingly, investors do not benefit from the regulatory protections provided for investors in investment companies. Further, GDIO is not a registered investment adviser or broker-dealer. GDIO does not provide investment, legal or tax advice.

GDIO will not hold or trade CEA-regulated commodity interests as administered by the CFTC. Further, Grayscale believes that GDIO is not a commodity pool for CEA purposes, and that Grayscale is not regulated by the CFTC as a commodity pool operator or trading adviser to raw materials as part of GDIO’s operations. Accordingly, investors will not benefit from the regulatory protections provided to investors in instruments or commodity pools regulated by the CEA.

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