Grayscale Investments
- Phil Bonello is the director of research at the $44 billion asset manager Grayscale Investments.
- Grayscale recently launched new trusts to invest in five cryptos other than bitcoin and ethereum.
- Bonello shares the risk/reward of the five digital tokens and three emerging crypto opportunities.
- See more stories on Insider's business page.
In the crypto world, bitcoin and ethereum are names that come up all the time. But in reality, the investable universe of digital assets stretches way beyond the two dominant tokens.
Grayscale Investments, the world's largest crypto asset manager with over $44 billion in assets under management, broke new ground last week by launching five investment trusts to track Basic Attention Token (BAT), Chain link (LINK), Decentraland (MANA), Filecoin (FIL), and Livepeer (LPT).
While these digital assets occupy fairly niche segments of the crypto market, Grayscale launched them in part because of popular investor demand, according to Michael Sonnenshein, the firm's CEO.
"A lot of investors within the existing Grayscale family have been really excited about these new product launches and even in just the last couple of days have already amassed millions and millions of dollars in investor demand," he said on CoinDesk TV on Tuesday.
So why are investors pouring millions of dollars into these virtual assets? And how do their investment merits stack up against each other? What are some of the crypto-specific risks that investors should take into account?
To answer those questions, Insider asked Grayscale's director of research Phil Bonello to break down the risk and reward profiles of these digital tokens and share other emerging crypto opportunities he's been watching.
The interview below was conducted over email and edited for length and clarity.
What is your background and how did it lead you into the crypto space?
I started my career working on internet of things (IoT) strategies for industrial companies. That got me interested in machine-to-machine communication more broadly. On a message board, I saw someone talk about Ethereum as this secure, general-purpose network, and at the time, it seemed like it could be a really interesting tool for these IoT use cases. That led me down the rabbit hole. I later joined Ikigai Asset Management to lead crypto investment research.
When did you buy your first cryptocurrency?
I bought my first crypto - ETH - in 2016. I started with Ethereum and later became completely convinced by Bitcoin's potential as money. I think a lot of people take a circuitous route when learning about crypto.
Where do you think bitcoin will go from here?
I am constantly looking at a variety of metrics and fundamental catalysts. We're still seeing new institutional products coming to market and institutional adoption is following accordingly. This is a much more institutionally driven Bitcoin market than in 2017, which is reflected in a variety of market data and on-chain data. This bodes well for Bitcoin and I would assume we will see less volatility than prior market cycles. [Bitcoin's] 30-day volatility is about one-third of its 2017 peak.
Why did Grayscale decide to launch the five new trusts?
These five projects have been on Grayscale's radar for a long time. They are projects that are either highly demanded by the market or that we feel are important building blocks for the crypto space. We believe that collectively, these products are strong representatives of how the digital currency and blockchain industry is working to address difficult technical, social, and financial challenges.
Can you elaborate on the investment merits and risks of each of the five cryptos?
Brave - The Brave browser has experienced impressive growth and now boasts over 25 million monthly active users. The functionality of Brave's token, Basic Attention Token (BAT), is increasing as Brave plans updates such as a native crypto wallet and a decentralized exchange aggregator.
Chainlink - Oracles are frequently a bottleneck for decentralized applications because it's difficult to prove the integrity of off-chain data in decentralized protocols. But many decentralized applications require robust data feeds. Chainlink is the most widely used oracle service in decentralized finance and LINK is one of the best-performing assets since 2019.
Decentraland - Virtual worlds such as Second Life or World of Warcraft are immensely popular but are centrally operated which gives the organizations inordinate power over users. Decentraland is a decentralized virtual world that gives users true ownership of digital goods and the freedom to interact without a third party. Atari recently announced it will be building a virtual casino on Decentraland and popular musicians like 3LAU have hosted shows. MANA is the native currency of Decentraland.
Filecoin - Filecoin is a decentralized storage and distribution network that aims to take on the $46 billion dollar cloud storage industry and currently facilitates over 5 petabytes of storage. Filecoin connects customers and data storage providers from around the world to achieve an efficient and robust marketplace for data storage needs. This market is growing quickly as video streaming becomes more common, digital resolutions increase, and more connected devices come online. FIL is the currency of the network and the collateral used by storage providers to ensure their good actions.
Livepeer - Livepeer is a decentralized video transcoding network that aims to enable cost-effective, resilient, and censorship-resistant video streaming, which today consumes 80% of internet bandwidth. Video transcoding is a necessary element of building a decentralized application with integrated video streaming and we think Livepeer has the best solution to date. LPT is the asset that is used as collateral to secure the network and ensure good work by service providers.
Are you bullish about any other emerging crypto assets aside from the five just mentioned?
Grayscale looks at a variety of factors when considering emerging crypto assets, including support for a digital asset by regulated exchanges and markets, what sort of real-world applications a protocol may have, how widely adopted a protocol is or may one day become, if we believe a product will serve the best interests of the investing public, a product's value to the investing public, how differentiated the product is from other offerings at Grayscale, and other considerations. DeFi applications, decentralized backend infrastructure, and gaming are key areas we continue to monitor.
Any additional thoughts you'd like to share regarding the crypto space?
The crypto space has never been more exciting. The biggest problem the space faces is scaling to meet the demand. It's a bandwidth issue that is being worked out in real-time. For an up-and-coming industry, it's a good problem to have.
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March 27, 2021 at 07:07PM
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