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Good morning, Ledger readers. Today, Bitcoin finally crossed—nay, smashed—the psychological mark of $20,000, and is now trading around $20,600. It’s a remarkable milestone for a currency that’s been written off as worthless more times than I can count.
The record high also comes as validation for a company called Grayscale, which has been a big driver of the current bull market. Grayscale has carved out a fabulous cottage industry by creating ETF-like products that let investors gain exposure to Bitcoin and other cryptocurrencies through the stock market.
Grayscale launched in 2013 and now has an eye-popping $13 billion in assets under management. The company, which is behind an ad campaign to persuade investors to ditch gold in favor of crypto, now controls around 2-3% of all Bitcoin in circulation and its owner, Barry Silbert—who was once the youngest stockbroker in the U.S.—has become a very, very rich man.
The question now is whether Grayscale can keep this up. The company has succeeded by exploiting a regulatory quirk to create a virtual monopoly in publicly-traded shares of cryptocurrency. Specifically, it has gotten around the SEC’s ban on Bitcoin ETFs by creating trusts that own cryptocurrency, and then selling shares in those trusts.
The technical distinction is mind-numbing to everyone but securities lawyers, but has some important implications. Namely, the trust structure means that Grayscale must sell first dibs on shares in the trust only to wealthy investors, who can then unload them on the public market after a year. For its trouble, the company takes a fee of around 2%.
For retail investors, buying Bitcoin this way means paying a premium, since shares in the Grayscale trust trade above the underlying price of Bitcoin. Why do this? Why not just buy Bitcoin directly from Coinbase, Kraken or another exchange? It turns out there is an appetite among some institutions that, for legal or other reasons, prefer to get their crypto in the form of shares. Likewise, trading-happy millennials have been buying the Grayscale stock (GBTC) at greater volumes than shares of Netflix or Disney.
This is a credit to Grayscale’s ingenuity in identifying a niche market and creating a product to serve it. But according to Ryan Selkis, the founder of crypto research firm Messari, Grayscale’s success also reflects terrible policy on the part of the SEC. The agency’s refusal to greenlight a Bitcoin ETF, says Selkis, has created a system that enriches the wealthy—those who can plunk down $50,000 to take part in Grayscale’s private offerings—while stiffing ordinary investors.
Given this situation, it feels like a matter of time before the SEC, which is about to get a new chair, comes to its senses, or before another firm figures out how to copy Grayscale’s lucrative model. And indeed, some newcomers, including a firm called BitWise, are trying to do just that. But for now, Selkis says Grayscale’s deep pockets and first mover advantage means no one is likely to dislodge it anytime soon.
Meanwhile, Grayscale doesn’t appear concerned about the future. I asked the company if it was worried about competitors or regulators killing its golden goose. In response, Grayscale managing director Michael Sonnenshein told me “The crypto industry is still young, and we believe the pie has a lot more room to grow,” adding that he welcomes competitors because they will help add liquidity and infrastructure.
Bottom line, Grayscale doesn’t sound too concerned about their fabulous ride coming to an end. Either that, or they’re too busy bathing in champagne over $20,000 Bitcoin to care. More news below.
Jeff John Roberts
DECENTRALIZED NEWS
Credits
Bitcoin (it's worth repeating) goes bananas ... Staid insurer MassMutual buys $100 million worth of bitcoin ... China's Digital Yuan in live tests ... Derivatives exchange Cboe prepares for crypto indexes ... Traditional asset manager Ruffer allocates 2.5% to bitcoin ... Crypto companies Paxos and BitPay seek OCC banking charters ... Klarna focuses on growth before an IPO ... Insurtech Bestow raises $70m ... Star DJ Deadmau5 launches crypto-collectibles ... CME Group to launch Ethereum (ETH) futures ... Binance Bitcoin Visa cards start shipping to Europe ... High frequency traders get even faster ... Student loan forgiveness could be great for consumer lenders.
Debits
Hackers breach U.S. Treasury computers ... Affirm delays its IPO ... Visa and Mastercard block payments to Pornhub ... Pandemic-fueled day trading is overwhelming online brokers ... FinCEN's report trove looks like a serious privacy threat ... Estonia withdrew 1,000 licenses from crypto companies in 2020.
BUBBLE-O-METER
547%
The increase in trading volume this year on LocalBitcoins, a peer-to-peer cryptocurrency trading platform, in Argentina. The number of users on Argentinian cryptocurrency exchange Ripio is up 150% this year, and Bitso, a Mexico-based exchange, has also seen large increases in trading volume in Argentina. Coindesk reports that the explosion has been driven by anxiety over Argentina's deteriorating economy, inflating currency, and strict controls on U.S. dollar purchases.
FOMO NO MO'
“We had a lot of companies come in and say, ‘We’re going to do great things,’ and then they would be gone from the face of the earth,” Wright recalls. “People would say, ‘We’re here for long term,’ and then nobody would pick up the phone.”
Steve Wright, a public utility manager in Washington, recalling the fleeting interest of Bitcoin mining companies in 2017. The mining boom that unfolded that year is repeating itself right now, including a surge of interest in mining Bitcoin in the United States. As The Ledger's Jeff John Roberts reports, that could help offset China's current dominance of Bitcoin mining, which some see as a threat to the decentralized system. But a repeat of the price collapse that unfolded in 2018 could also cut those ambitious plans short.
THE LEDGER'S LATEST
America's top bank regulator wants to give you crypto for going to school - Robert Hackett
Bankers can be the heroes of the pandemic recession - Aaron Fine and Ahmet Hacikura
Robinhood rival Public raises $65 million - Jeff John Roberts
Republicans think the economy is improving. Democrats think it's getting worse - Anne Sraders
Portfolio automation startup Vise raises $45 million - Lucinda Shen
MEMES AND MUMBLES
The start of an enlightening thread from Bitcoin veteran Eric Wall, showing the breadth and depth of misleading blockchain hype at an all-too typical conference.
This edition of The Ledger was curated by David Z. Morris. Contact him at david.morris@fortune.com
