How did Grayscale grow its AUM so fast?

When I write this, Grayscale Investments has about $9.8 billion in Assets under Management. This undoubtedly makes Grayscale one of the fasted growing asset management companies in history.

Established in 2013 by Digital Currency Group, Grayscale operates trusts that allow investors to invest in various cryptocurrencies. Trusts are open-end, which means that the number of units will change as investors move in or out of the funds.

The units in the Grayscale Bitcoin Trust (GBTC) and the Grayscale Etherium Trust (ETHE) are that are quoted on the OTCQX market. Both trade at a significant premium to the net asset value (NAV) per share. That in itself is intriguing, since Grayscale charges a 2% management fee on assets.

Why does the Grayscale Bitcoin Trust exist?

The Grayscale Bitcoin Trust is passive, as opposed to being an active fund. The investment policy is simply to hold Bitcoin. Passive funds are usually set up to track and index or some other benchmark. So you might ask yourself what is the point of setting having a fund that only holds one asset?

Why would somebody buy this as opposed to buying the underlying asset directly? How come that investors are willing to buy Grayscale Bitcoin Trust units at a premium to Bitcoin per unit and pay Grayscale a 2% annual fee, instead of just buying Bitcoin directly?

The answer is two-fold:

  1. Most institutional investors are simply not allowed to invest directly into Bitcoin. They have a strict mandate on what they are able to invest in. So, they can’t, even if they want to, get exposure to Bitcoin unless it is through a security, such as a trust unit. Eventually, we can expect the Grayscale Bitcoin Trust to convert into an ETF and the management fee to go down.
  2. Most investors into the Grayscale trust are not buying investing through the open market. They participate in something called an Offered Product. Accredited investors participate in the Offered Product and receive an allocation that values the trust units they receive on a NAV-basis, or Bitcoin per share. By participating in the Offered Product, they are also bound to selling restrictions and subject to significant limitations on resale and transferability.

More on Cryptocurrencies

How to Value a Brand?

The intriguing thing about brands is that they are mostly intangible. You generally won’t find the brand value of a company on its balance sheet. As an example, the $90 billion that Coca-Cola has spent on advertising in its history has no value that is shown on Coca-Cola’s balance sheet. Nonetheless, the brand value clearly is there. The market value of Coca-Cola’s common stock is ten times that of the stated book value of the equity. 

So how do we value a brand? The problem with a task like trying to value a brand is that there will always be some form of circular logic in this kind of exercise.

Is Coca-Cola such a strong business because it is built around such a strong brand, or is Coca-Cola such a strong brand because it is built around such a strong business? 

Where is the boundary where the value from the business model stops and value add from the brand begins? Is it even possible to separate those two things from each other? Brands are contextual. If you could buy the brand out of Coca-Cola, Inc and pivot it to sell Coca-Cola branded furniture, value would most definitely be destroyed. 

Brand Valuation Frameworks

As it turns out, ISO – the International Organization of Standards – has formulated a standard on Brand Valuation. You can even find an old version of the standard online.

Interbrand we the first company to get a certification for standard ISO 10668, the standard for Brand Valuation. Interbrand publishes an annual list of the most valuable brands in the world. You can read more about the Interbrand brand valuation methodology here.

Brand Valuation Resources

Something more to add? Let us know in the comments section!