Examples provided for illustrative purposes. Allocations are subject to change.

Investors can think of the Grayscale Currencies Crypto Sector similarly to how they might think of traditional currencies—with some critical distinctions. For many investors, a currency is typically defined as a: (i) store of value, (ii) medium of exchange, and (iii) unit of account. The value of a traditional currency reflects its perceived worth among users as well as aggregate demand in light of local, societal, and global macroeconomic risks. The same holds true with currencies in crypto.

There is, however, a key difference: cryptocurrencies are not issued or controlled by a central government but are instead programmatically generated. In the traditional sense of a currency, a central bank controls monetary policy and can decide to increase monetary supply. Notably, we experienced this when the Federal Reserve sought to counteract the economic effects of COVID between 2020 and 2021 to the tune of $3 trillion in quantitative easing^[1]. Central banks can also decide to raise or lower interest rates based on factors such as inflation and economic growth. In crypto, by contrast, supply and inflation are predetermined in the code; they can’t be changed.

In this way, open-sourced and decentralized currencies in crypto are “trustless”; instead of needing a centralized authority or intermediary, network users need only trust the underlying code.

Bitcoin, the first and largest asset in the crypto industry, accounts for a disproportionate amount of the Grayscale Currencies Crypto Sector. Bitcoin operates as a global and decentralized network, which means it is beyond the direct control or censorship of any specific government or institution. Because it possesses a transparent and hard-capped supply, Bitcoin may serve as a safe haven for asset value in instances of monetary instability. This makes Bitcoin a particularly attractive alternative for individuals in countries like Argentina and Venezuela, where annual currency inflation rates can exceed 100%^[2].

Though currently Bitcoin represents the largest asset in this sector, the Grayscale Currencies Crypto Sector includes many others. Beyond Bitcoin, XRP is the second largest asset (Figure 2). Designed as an alternative to SWIFT, XRP aims to offer fast cross-border payments at lower transaction costs^[3] than competitors. Both of these assets represent General Purpose currencies, or tokens with broad application as a monetary instrument. However, this sector also includes Privacy Preserving currencies such as Monero and Zcash, which often allow for higher levels of anonymity and confidentiality (eg. stealth addresses and confidential transactions) in comparison to other crypto assets. These privacy preserving assets may be attractive in cases where sensitive transaction information is involved and can be protected from surveillance or censorship.

Examples provided for illustrative purposes only.

^[1] Depledge and Statista

^[2] New York Times

^[3] Coinpedia and xrpl.org

Important Information

Indexes are unmanaged and one cannot invest directly in an index

Investments in digital assets are speculative investments that involve high degrees of risk, including a partial or total loss of invested funds. Investments in digital assets are not suitable for any investor that cannot afford loss of the entire investment.

All content is original and has been researched and produced by Grayscale Investments, LLC (“Grayscale”) unless otherwise stated herein. No part of this content may be reproduced in any form, or referred to in any other publication, without the express consent of Grayscale.

This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any investment in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change. This content does not constitute an offer to sell or the solicitation of an offer to sell or buy any security in any jurisdiction where such an offer or solicitation would be illegal. There is not enough information contained in this content to make an investment decision and any information contained herein should not be used as a basis for this purpose.

This content does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of investors.

Investors are not to construe this content as legal, tax or investment advice, and should consult their own advisors concerning an investment in digital assets. The price and value of assets referred to in this content and the income from them may fluctuate. Past performance is not indicative of the future performance of any assets referred to herein. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments.

Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on Grayscale’s views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed or implied in such statements. In addition to statements that are forward-looking by reason of context, the words “may, will, should, could, can, expects, plans, intends, anticipates, believes, estimates, predicts, potential, projected, or continue” and similar expressions identify forward-looking statements. Grayscale assumes no obligation to update any forward-looking statements contained herein and you should not place undue reliance on such statements, which speak only as of the date hereof. Although Grayscale has taken reasonable care to ensure that the information contained herein is accurate, no representation or warranty (including liability towards third parties), expressed or implied, is made by Grayscale as to its accuracy, reliability, or completeness. You should not make any investment decisions based on these estimates and forward-looking statements.

There is no guarantee that the market conditions during the past period will be present in the future. Rather, it is most likely that the future market conditions will differ significantly from those of this past period, which could have a materially adverse impact on future returns. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. We selected the timeframe for our analysis because we believe it broadly constitutes the most complete historical dataset for the digital assets that we have chosen to analyze.