Bitcoin climbs to record high as the crypto market matures

Michael Sonnenshein, Grayscale Investments Managing Director, joined Yahoo Finance to discuss Bitcoin’s recent surge.

Video Transcript

- Grayscale refers to itself as a leader in digital currency investing, and they actually can prove it. They just topped $10 billion in assets under management. Let's bring in the Managing Director, Michael Sonnenshein, as well as our own Yahoo Finance Dan Roberts to talk about crypto and what's propelling cryptocurrencies. And a lot of it has to do with COVID-19, at least from the investors that you speak to right? Michael.

MICHAEL SONNENSHEIN: That's in fact the case, and appreciate you guys having me on. I think from our seat at Grayscale, we've seen a material uptick in investor engagement around allocating to Bitcoin in the wake of the pandemic. I think a lot of investors are really drilling into the fact that Bitcoin is a verifiably scarce asset. It's limited in quantity. And they think about that in the context of all the quantitative easing and perpetual money printing that's taking place in the fiat currency world and why their portfolios warrant an asset that has verifiable scarcity. So we've definitely seen a material uptick around that narrative, to say the least.

DAN ROBERTS: Michael, Dan Roberts here. Thanks for coming back on. As Adam mentioned, you know, Grayscale hitting that new market in AUM of $10 billion, and that got a lot of attention. And in general, this recent ride for Bitcoin and some of the other coins has really been attributed to institutional interest. Now my only question there is, it's hard for the average person, the retail investor, to get very excited about that. Oh, Wall Street firms are investing more in crypto. OK.

MICHAEL SONNENSHEIN: Right.

DAN ROBERTS: But this time, the Bitcoin rise, many in the industry like to say, this time it's different. And maybe it's PayPal and Square, which are a lot more consumer-facing, getting in. Why do you think this time is different, in addition to just, obviously, what you guys are directly seeing and catering to with Wall Street firms?

MICHAEL SONNENSHEIN: Dan, it's a great question. I think we are in a very different market than we were in 2017. I think that Bitcoin and the digital currency market overall has become way more of a two-sided market with the development of derivatives, options, a lending and borrowing market. I also think who is investing and why they're investing has changed materially. I know certainly at Grayscale across our 10 products, now about 80% of our inflows are coming from institutional investors.

And I think a lot of them are really looking at, again, that verifiable scarcity narrative. One of the most prevalent narratives out there, Dan, and we've talked about this before, is rotations out of gold and into assets like Bitcoin, which is certainly something that has resonated with investors. But you also have a backdrop of new companies and other forces moving the needle for investors.

You have corporations adding Bitcoin to their balance sheets, like Square and MicroStrategy. You have companies like PayPal opening the door to investors and merchants being able to use PayPal to not only buy and sell crypto but use crypto as part of their commerce. And so you have really an environment that looks very, very different than it did in 2017.

And certainly at Grayscale, we've actually now topped $12 billion in AUM, and we've seen over $3 billion of inflows so far this year. So we're seeing it on all fronts, but certainly that institutional adoption is not just something we're talking about. We're actually seeing it at Grayscale every day.

DAN ROBERTS: Yeah, and just quickly, Michael, I mean, you mentioned there about PayPal not just going to allow people to buy and hold Bitcoin but also to use it for payment. What's interesting there is for years already, people have called Bitcoin digital gold, and the people kind of inside the industry have said, it doesn't need to be used for payments. It's a store of value. It's an investment. It's a hedge.

That's all well and good. But now with PayPal getting in, might we actually see a transition there where people would use it for payments? And of course, the caveat there would be that, as you see the price rise, it's hard to imagine people wanting to use it for payments rather than just holding onto crypto as an investment.

MICHAEL SONNENSHEIN: I think from the industry perspective, we're excited that Paypal's opening up yet another corridor for accessibility, whether you're a merchant or you're a user of their service. But ultimately, one of the narratives that used to be quite prevalent, which is not anymore, is somehow that Bitcoin failed because we're not using it in everyday commerce or to buy a cup of coffee. In the developed world, investors are allocating to Bitcoin and other digital assets as an investment, and they know that the near-term use cases around these assets are not for everyday commerce.

But ultimately, that may change with the advent of developments like we're seeing from PayPal. So time will tell. It's a pretty new aspect of the ecosystem.

- Seana, did you want to get in on this before I thank our guest?

SEANA SMITH: Sure. Michael, I was just going to-- just going off of what you were just saying, just about how Bitcoin or the role Bitcoin should play in an investment portfolio, I think there's still a lot of hesitation out there. And I know you were talking about why this time is different. A lot of that has to do with institutional players that we're seeing. But for some of our viewers maybe who are looking to get into Bitcoin but hesitant at this point, how would you advise them to slowly start allocating some of their position to Bitcoin?

MICHAEL SONNENSHEIN: I think for a lot of investors-- we conduct an investor study every year that examines investor attitudes around it. And for most investors, I think the fact that they can start small and add to their position over time is one of the things that's really, really attractive about Bitcoin. And so whether you buy Bitcoin directly-- and there's tons of great services out there where folks can do that, and they can start buying in small amounts. You can buy a penny's worth of Bitcoin or $5 worth of Bitcoin.

You can also go into your brokerage account and look at a variety of the Grayscale products that are traded. If you have access to futures, there's actually quite a few different ways for folks to get exposure. But I would make sure people understand that it is early days for Bitcoin.

It's early days for this asset class. It's only been around for the last, you know, call it 10, 12 years. And so you should not be putting more into this than you can afford to lose.

And as investors, you know, continue to allocate to the space today, there are tons of resources to get smart on it, whether you're looking at websites like CoinDesk. The Grayscale website has tons of research. There's even great coverage from Yahoo and mainstream financial media. So I tell folks, it's not something that can be ignored. It's here to stay. And of course, we'd love to be a resource to you.