Grayscale, the world’s largest digital asset manager, has announced the quarterly rebalancing of its crypto funds, which resulted in some significant changes in the composition of its portfolios. The most notable move was the removal of Polygon’s MATIC token from the Grayscale Digital Large Cap Fund (GDLC), while adding Avalanche’s AVAX and Ripple’s XRP to the same fund. The rebalancing also affected the Grayscale DeFi Fund (GDF) and the Grayscale Smart Contract Platform Ex-Ethereum Fund (GSPE).
According to Grayscale, the rebalancing of its crypto funds is based on the market capitalization of the underlying assets, as well as the eligibility criteria and investment objectives of each fund. The GDLC fund aims to provide exposure to 70% of the digital asset market, while the GDF fund focuses on the top 10 DeFi tokens, and the GSPE fund targets the smart contract platforms that are not Ethereum.
MATIC, which is the native token of Polygon, a scaling solution for Ethereum, was removed from the GDLC fund after its market cap fell below the threshold required for inclusion. MATIC was one of the best performing crypto assets of 2023, reaching an all-time high of $2.68 in May, but it has since lost more than 50% of its value, trading at around $1.20 as of January 7, 2024. MATIC was also the only token that was completely removed from any of Grayscale’s funds in the latest rebalancing.
On the other hand, AVAX and XRP were added to the GDLC fund after their market caps increased significantly in the past quarter. AVAX is the native token of Avalanche, a fast and scalable blockchain platform that supports smart contracts, decentralized applications, and interoperability with other chains. AVAX has been one of the best performing crypto assets of 2024, surging more than 400% since October, reaching an all-time high of $124.76 on January 6, 2024. AVAX is now the sixth-largest crypto asset by market cap, with a valuation of over $28 billion.
XRP is the native token of Ripple, a payment network that enables fast and cheap cross-border transactions using a distributed ledger technology. XRP has also been on a strong uptrend since December, gaining more than 150% in the past month, reaching a high of $1.13 on January 6, 2024. XRP is now the seventh-largest crypto asset by market cap, with a valuation of over $25 billion. XRP’s rally has been driven by the positive developments in the ongoing legal battle between Ripple and the U.S. Securities and Exchange Commission (SEC), which accuses Ripple of conducting an unregistered securities offering through the sale of XRP.
How the Rebalancing Affected the Other Funds
The rebalancing of Grayscale’s crypto funds also involved some minor adjustments in the weights of the existing assets, as well as the addition and removal of some tokens from the GDF and GSPE funds. The GDF fund, which tracks the performance of the CoinDesk DeFi Index, removed SushiSwap (SUSHI) and Synthetix (SNX) from its portfolio, while keeping the other eight tokens unchanged. The GSPE fund, which tracks the performance of the CoinDesk Smart Contract Platform Ex-Ethereum Index, added Cosmos (ATOM) to its portfolio, while keeping the other four tokens unchanged.
The table below shows the composition and weights of each fund after the rebalancing, as of January 4, 2024:
| Fund | Assets | Weights |
|---|---|---|
| GDLC | Bitcoin (BTC) | 62.77% |
| Ethereum (ETH) | 25.93% | |
| Cardano (ADA) | 3.87% | |
| Bitcoin Cash (BCH) | 1.58% | |
| Litecoin (LTC) | 1.48% | |
| Chainlink (LINK) | 1.38% | |
| Stellar (XLM) | 1.21% | |
| Avalanche (AVAX) | 0.93% | |
| Ripple (XRP) | 0.85% | |
| GDF | Uniswap (UNI) | 29.99% |
| Aave (AAVE) | 19.99% | |
| Compound (COMP) | 14.99% | |
| Maker (MKR) | 9.99% | |
| Yearn Finance (YFI) | 9.99% | |
| Curve (CRV) | 4.99% | |
| Balancer (BAL) | 4.99% | |
| Bancor (BNT) | 4.99% | |
| GSPE | Solana (SOL) | 49.99% |
| Polkadot (DOT) | 24.99% | |
| Terra (LUNA) | 14.99% | |
| Near (NEAR) | 4.99% | |
| Cosmos (ATOM) | 4.99% |
What the Rebalancing Means for Investors
The rebalancing of Grayscale’s crypto funds reflects the dynamic and evolving nature of the digital asset market, as well as the preferences and expectations of the investors. Grayscale’s funds are designed to provide exposure to different segments and themes of the crypto space, such as large-cap, DeFi, and smart contract platforms. By adjusting the composition and weights of its funds, Grayscale aims to capture the most relevant and promising crypto assets for its investors, while also adhering to the regulatory and operational requirements of its products.
Grayscale’s funds are also one of the main vehicles for institutional and accredited investors to gain exposure to the crypto market, as they offer the benefits of security, liquidity, and transparency, without the hassle of directly buying and storing the underlying assets. Grayscale’s funds are traded on the over-the-counter (OTC) market, and they often trade at a premium or discount to their net asset value (NAV), depending on the supply and demand dynamics. The rebalancing of Grayscale’s funds could affect the price and performance of the individual tokens, as well as the overall crypto market, as it could trigger buying and selling pressure, as well as arbitrage opportunities, among the investors.
