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Grayscale buying 5K Bitcoin caused price increase and scarcity

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Digital assets management firm Grayscale Investments bought 4,618 BTC within 48 hours of accepting new investments again on January 13. As a result, Bitcoin’s price rose to US$39K before dropping again to US$37k. Additionally, the large quantity of bought Bitcoin caused its supply to run low which affects the processes of crypto exchange sites.

Grayscale temporarily stopped accepting new crypto investors on December 21, 2020. The digital assets investment firm allowed big-time investors to buy shares of major cryptocurrencies such as Bitcoin, Ethereum and Litecoin. The firm currently manages $27.6 billion worth of crypto assets with the Grayscale Bitcoin Trust holding close to US$21 billion worth of BTC and the Grayscale Ethereum Trust holding US$3.1 billion worth of ETH.

Grayscale Investments bought 2,172 BTC on the first day it reopened its services on January 13 that is equivalent to two and a half days’ worth of newly mined Bitcoin from all over the world.

Federal printing of money led to rising inflation rates that caused investors to look for a hedge asset such as Bitcoin. High institutional demand for this digital coin has caused management firms to buy significant amounts.

Consequently, crypto exchange sites have driven their supply to scarcity. Exchanges such as stock and crypto trading platform E-Toro have announced to its clients that its liquidity might experience problems due to a lower supply of BTC. Cryptanalysis platform Glassnode reports that only one-third of all newly mined Bitcoin is sent to exchanges since July 2020. At the same time, Grayscale has acquired over 200,000 BTC.

However, quantum economics analyst Jason Deane said in an interview with crypto news provider Decrypt that a shortage in Bitcoin supply is not possible.

‘At some point, existing holders will reach their ‘price’ and release some or all of their supply, creating a new equilibrium,’ he elaborated. Even if a large number of Bitcoin is hoarded, the remaining supply can be further divided into its smaller unit called ‘satoshi’.

Moreover, the large buy-off caused Bitcoin’s price to reach US$39,000 on the same day Grayscale reopened its services and bought a significant amount of Bitcoin.

Grayscale CEO Michael Sonnenshein reported that Grayscale received a total of US$3.3 billion worth of investment spread across the company’s range of investment products in the fourth quarter of 2020.

Sonnenshein expressed their clientele’s way of minimizing risk, saying in a tweet ‘While Bitcoin remains most of our investor’s first step into space, we’ve seen an uptick in interest from allocators looking for broad exposure, avoiding the need to pick winners and avoid losers.’

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