A recent report by Grayscale, the globe's largest digital currency asset managing director, revealed the firm now holds roughly 1.7% of all of Bitcoin's supply in its Grayscale Bitcoin Trust (GBTC). Having seen the biggest quarter even so, Grayscale's share of Bitcoin increased past 0.1% in 2022 despite electric current market uncertainties brought about by the COVID-19 pandemic.

Rayhaneh Sharif-Askary, Grayscale's head of investor relations, told Cointelegraph that "the bulk of capital invested into our products comes from institutional investors." He elaborated:

"We saw 88% of the $503.7M in capital letter invested into our family of products come from institutional investors this by quarter. Our recent conversations with investors reinforce the idea that now, more ever, investors are going to be looking for means to build resilient portfolios. Moreover, the implications of the current, unprecedented monetary policy are causing previously skeptical investors to take another hard look at the nugget form."

While the Bitcoin Trust is the near popular amidst the company's family of products, the increased inflow was experienced across the board, with Bitcoin (BTC) and all other altcoin-based trusts seeing around one-half a billion dollars in investment — double that of Q3 and Q4 2022. In Q1 2022, approximately 38% of Grayscale's investors entered multiple Grayscale products in order to diversify their crypto holdings.

The Grayscale Bitcoin trust received effectually $389 meg in investment throughout the quarter, which ways that if GBTC was an substitution-traded fund, information technology would be amid the 5% of yr-to-date inflows. Moreover, GBTC is too one of near-traded OTC securities and has received the title of one of the most active securities in terms of trading volume in 2022, which further signals demand among institutional investors and traders.

While GBTC too targets retail investors, institutional players brand up the overwhelming majority of capital inflow. Institutional investors represented 88% of the investment capital generated in the first quarter of 2022, nearly of which are hedge funds.

Institutional demand for GBTC

Has institutionalization arrived?

Grayscale was the showtime regulated crypto product to hit the market, having been launched in 2022. Since then, the visitor has expanded into a number of altcoin-based funds. Nonetheless, the supply of options for institutional exposure has continued to grow, especially over the terminal couple of years.

Commutation-traded products similar the physically-backed Bitcoin ETPs from Amun AG and from WisdomTree — both of which are currently trading in the Switzerland SIX stock substitution — are an instance of readily available exposure for institutional players.

Most recently, 3iQ has announced the launch of its Bitcoin close-stop fund on the Toronto Stock Substitution, which leverages price indexes by CryptoCompare and VanEck Europe subsidiary MVIS and custody services by Gemini. Cameron Winklevoss, Gemini'southward president, recently told Cointelegraph: "This mirrors the growing appetite that institutional and retail investors alike are demonstrating for incorporating crypto avails into their larger portfolios."

Exposure to derivative products has also become widely available for institutional investors in the terminal month through the Chicago Mercantile Substitution'south Bitcoin futures and options contracts as well as Bakkt's physically-settled Bitcoin futures and LedgerX'south regulated derivatives products.

Information technology'southward important to note that the interest and volume on these paper markets is miniscule when compared to unregulated activity. According to Jonathan Hobbs — chartered financial analyst, author of The Crypto Portfolio and the chief operating officer at Ecstatus Capital — institutional demand is already here, but the claiming is finding compliant products that can satisfy their standards. Hobbs told Cointelegraph:

"As time goes past more traditional hedge funds, fund of funds and family offices are starting to see that Bitcoin and digital assets can offer them diversification. The main challenges for them lie in having digital investment products that will pass their compliance checks. Over the final few years nosotros have seen the digital space mature considerably, with several infrastructure improvements that are making Bitcoin more all-around to professional investors."

Marketplace sentiment amidst institutional investors

Grayscale's results are impressive and show that institutional investors are looking to proceeds exposure to Bitcoin and other digital assets even during the current climate, where doubt and fear are becoming the norm. However, given the electric current state of diplomacy, Bitcoin is left for those with a higher risk appetite. Matt D'Souza, CEO of Blockware Solutions and digital currency hedge fund director, told Cointelegraph, "Markets turn on a dime. If you're not in when the opportunity presents, yous're too belatedly." He so added:

"While some institutional investors may be looking to bet on Bitcoin on the basis it could theoretically exercise well in a crisis, managers for the most part want cash which is by far the safest option. Managers that have been around for a long fourth dimension understand how to last. It's considering their investors are in the stay rich business organization, not the get rich. This surroundings warrants capital preservation. As risk appetite comes back into the market I expect Bitcoin to be one of the all-time opportunities."

In fact, while compliant offers for BTC are on the rise, information shows that, equally of late, regulated derivatives accept been losing footing both in terms of volume and open interest in contracts. This trend is observed only in regulated markets, while unregulated derivatives products had their biggest month nevertheless in March in terms of trading volume.

This may suggest that institutional investors who are betting on Bitcoin are doing so as office of a longer-term strategy, given the increased involvement in passive products like GBTC simply decreased interest for CME'south futures and options.

CME Bitcoin futures Total open interest and volumes

This trend may before long pivot as large players enter the field. For example, Renaissance Technologies' Medallion Fund — a hedge fund with $10 billion worth of avails under direction — has recently received approval from the United States Securities and Exchange Commission to offering products and services involving the CME-regulated Bitcoin futures market to its clients.

Regulation is key

While institutional interest and offerings both seem to be on the rise, at that place is still a lot of uncertainty when it comes to Bitcoin. At that place are many aspects in play, from the technology to monetary policy (especially with the upcoming halving), and nearly importantly, regulation. Bitcoin is still threading uncharted territory when information technology comes to compliance, and research shows that news involving clear regulatory updates increment need for Bitcoin.

Grayscale Bitcoin Trust has become an SEC-reporting security, which shows that regulators are willing to work with companies in the industry. Co-ordinate to Sharif-Askary, this type of collaboration is helping drive the industry forward. Sharif-Askary told Cointelegraph that regulators seem "eager to appoint, especially from an educational perspective." He went on to add that Grayscale Bitcoin Trust becoming regulated by the SEC is a vital step:

"This ways that the Trust is held to the same reporting and disclosure standards as stocks and ETFs that trade on national exchanges such as NYSE and Nasdaq. It also reinforces that at that place are ways to proactively work with regulators, within the existing regulatory frameworks."

What virtually a Bitcoin ETF?

While the long-awaited Bitcoin commutation-traded fund is however nowhere to be seen, information technology seems that institutional demand is already hither. While the cryptocurrency industry even so needs to make adjustments to ensure more transparency and compliance, information technology seems that the correct steps are existence taken. In the meantime, regulated alternatives to the Bitcoin ETF go on to increase.

Related: The SEC Does Not Want Crypto ETFs — What Will Information technology Have to Get Approval?

The latest try at a Bitcoin-related ETF was made by Wilshire Phoenix. The proposal was rejected by the SEC, who cited lack of a surveillance-sharing agreement with a meaning market for the underlying nugget or a novel demonstration of the market's inherent resistance to manipulation.

Nevertheless, companies in the space are pushing toward a more transparent market. Crypto data forensics companies are working alongside service providers and regulators to create a more transparent market, which volition play a big role in the approval of an ETF. However, co-ordinate to Hobbs, this may not be as pregnant every bit the community thinks:

"With crypto products such every bit the CME Bitcoin Futures, the Grayscale BTC Trust in the U.S. and the Wisdom Tree Bitcoin ETP, there are already options for institutions to go Bitcoin exposure without having to purchase information technology directly. Also, not all institutional investors who want to go digital are looking for passive 'buy and hold' Bitcoin exposure, which is what yous go with an ETF. Many of them are looking for regulated digital quant funds similar Ecstatus Capital which can trade Bitcoin long and short."

Whether 2022 becomes the year of the Bitcoin ETF is unclear, but one affair is sure: Compliant options be and are becoming increasingly available. With or without an ETF, regulation is the fundamental to advancing the industry, and if the industry continues to mature, an ETF may be merely another milestone on Bitcoin'south route to mass adoption.