Grayscale gears up for Bitcoin ETF as crypto prices rebound from recent lows

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High Angle View Of ETf Text On Table

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While Grayscale, the world’s largest digital asset manager with nearly $ 35 billion under management, is unlikely to have the first Bitcoin ETF approved in the US, it has no plans to give up its significant market share. anytime soon.

With crypto prices rebounding across the board, bitcoin recently crossed $ 40,000 for the first time since June, Grayscale hired 20-year ETF veteran Dave Lavalle as the world’s first head of ETFs. .

This hire temporarily highlights Grayscale’s positioning for the transition of all of its 15 ETPs, which are only available to high net worth and institutional investors and cover everything from single-asset funds to diversified portfolios, to ETFs where applicable. is possible, which CEO Michael Sonnenshein has hired to do.

Over the past year, the company has slowly built its ETF team with a large number of hires and moved its two flagship funds focused on bitcoin (GBTC – $ 25 billion AUM) and ether (ETHE – AUM $ 7.9 billion) in SEC reporting companies. Obtaining this designation has two main advantages: reducing by half the lock-up period of shares before they can be traded on the OTC markets from 12 to six months, and accustoming the company and investors to the regular information that should be submitted as they transition to ETFs.

That said, the question remains whether or when the SEC will approve its first Bitcoin ETF. The regulator is currently facing several requests – including one from investment giant Fidelity – but in the past it has denied every request. This stubbornness has frustrated at least one SEC commissioner, Hester Peirce, who has strongly opposed past rejections and fears such unnecessary delays could have negative consequences for investors.

Lavalle would not predict when he thought such approval would materialize. However, he made it clear his belief that a crypto ETF is just one more rung on the evolutionary ETF ladder.

He told Forbes: The notional Bitcoin ETF coming to market is just not a new story. This is just the next story in the evolution of the exchanger towards the profit market. So obviously we started with, you know, products based on national market capitalization weighted indices. And then we moved into international equities, commodities, fixed income, fixed income sub-sectors, more esoteric areas like you know, frontier markets or, European or Asian markets. And so really, the notion of a Bitcoin ETF coming into the market is just another iteration of this type of regulatory exercise.

In addition, there will be plenty to keep him busy in the meantime, as the asset manager also announced today the creation of a registered investment advisory (RIA) company, and he plans to use his expertise to offer diversified products covering asset classes.

I’ve lived in this kind of ETF-based world for the vast majority of my career, and what I’m seeing is the entire digital asset base, slowly and over the last few months, accelerating in the area where I have the expertise.

That said, it will be interesting to see how the grayscale will compete once one or more Bitcoin ETFs are approved. The company’s ETP products, especially GBTC, had been a very popular product in the recent bull run among institutions as they offered exposure to the industry without having to own digital assets. Additionally, due to limited access and high demand, GBTC shares traded at a high premium, reaching 40% above its net asset value.

However, when the market fell recently and competing ETFs were approved by regulators in Canada, GBTC shares fell and the premium became a haircut, falling below 20% in May.

GBTC discount or NAV premium

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This reversal baffled some clients, especially given the relatively high 2% management fee charged by Grayscale. In fact, Grayscale received a letter from activist group Marlton asking the company to compensate investors, claiming it was responsible for the downfall. However, in an interview with Forbes Grayscale CEO Michael Sonnenshein argued that Grayscale has no control over the share price and that at least one legal expert we spoke with, Gregory Xethalis, partner at Chapman and Cutler LLC, concurred with this sentiment, stating under the [GBTC] Delaware trust agreement and law a sponsor [Grayscale] has limited fiduciary obligations and maintaining a price premium in the secondary market is not one of them.

Yet, since Grayscales’ parent company, Digital Currency Group, purchased $ 193.5 million of GBTC shares and is authorized to increase that amount to $ 750 million in total.

More recently, however, the haircut has started to decline and GBTC shares are approaching NAV – it is currently at 11.86%. It is expected that once GBTC is transformed into an ETF, the shares will trade at net asset value.

Finally, looking ahead, Lavalle was cautiously optimistic that once a Bitcoin ETF is approved, it will provide some sort of roadmap for other crypto assets to follow suit. Once the SEC gets comfortable and approves a filing, it will give us, as an industry, great transparency about the specific considerations that the SEC has considered and with which it has come to grips. ‘easy. And so I think this will give us a better understanding of what other products could be considered in the form of an ETF.

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