Grayscale – the world’s largest cryptocurrency asset manager – has announced a new investment product providing exposure to Bitcoin mining hardware.
The fund will raise money for buying Bitcoin ASIC machines, which will be operated by Foundry Digital to mine and sell Bitcoin on behalf of investors.
Grayscale’s strategic mining play
According to Grayscale’s website, Grayscale Digital Infrastructure Opportunities LLC (GDIO) is aimed at creating an income stream that differentiates itself from “traditional income-oriented investments.”
The firm will aim to buy mining hardware, buy and sell Bitcoin daily, and distribute operating income to investors on a quarterly basis.
“After talking with Mike Colyer [CEO of Foundry] and the Foundry team about crypto winter, we agreed there was an opportunity to connect investors directly with crypto mining,” said Grayscale CEO Michael Sonnenshein over Twitter on Thursday. “GDIO is the result.”
The “crypto winter” of 2022 has seen Bitcoin’s price crumble 70% from its highs last November – taking multiple crypto industry firms along with it. Some of those firms included Bitcoin miners, which saw their effective profits from minting new Bitcoin decline in exact proportion to its price.
Given that mining is now less profitable than during bear market, a central point of GDIO’s investment thesis is the opportunity to buy Bitcoin mining machines at distressed levels.
The organization is betting on Bitcoin returning to higher prices down the line, as part of a four stage mining cycle: the “Rising Bull,” the “Mining Gold Rush,” the “Inventory Flush,” and the “Shakeout”.
Grayscale said the mining cycle has now entered its “Inventory Flush” stage, where hash rate remains high, but Bitcoin’s price has declined substantially. The subsequent “shakeout”, according to the theory, will lead to a hash rate drop as miners are forced to turn off their machines.
“Historically, deploying capital in a “Shakeout” phase and exiting in a “Mining Gold Rush” phase is the most profitable,” said the company.
The product is open only to accredited investors and requires a minimum investment of $25,000.
A long-term commitment
Both Sonnhenshein and Colyer held a recorded discussion on their partnership in person. Sonnenshein explained that for Grayscale, GIDO will offer a “complementary” investment opportunity, alongside the asset manager’s other products.
For Foundry, Colyer emphasized that now is “a really good time to start leaning in, and start investing back into the space.”
“We think there’s gonna be a lot of opportunities out there to continue to build out the network… and we think long term, it’s a great investment,” he said.
Grayscale currently possesses the largest Bitcoin fund on the planet, responsible for holding over 600,000 Bitcoin worth roughly $12.7 billion. That’s more than 3% of the network’s entire supply.
The fund gives investors general exposure to the price of Bitcoin through a more traditional investment offering. However, the Grayscale Bitcoin Trust (GBTC) is currently trading at one of its highest discount rates ever – meaning its share value is less than the underlying Bitcoin it’s supposed to represent.