• There is almost no chance GBTC conversion will be allowed at same time futures-based bitcoin ETFs are approved, Bloomberg Intelligence analyst says
  • Grayscale fees will come down upon product conversions to ETFs, but risk-reward potential outweighs current prices, executive says

Grayscale Investments CEO Michael Sonnenshein said Wednesday that he expects all of the fund group’s products to one day become ETFs if regulation allows for the conversions. 

The largest digital currency asset manager — with about $42 billion assets under management as of Oct. 1 — has already revealed plans to convert its Grayscale Bitcoin Trust (GBTC) as other fund groups also seek approval for ETFs that would invest directly in the crypto asset.

GBTC launched in 2015 and now has $34.2 billion in assets. Grayscale launches products as private placements for accredited investors, as the offerings then move into secondary markets and ultimately become reporting companies. 

Grayscale’s ​​Bitcoin Cash Trust, Ethereum Classic Trust and Litecoin Trust were the latest trusts to become SEC reporting companies last month. As a result, the offerings file additional reports and financial statements with the SEC.

The fourth stage of the Grayscale product life cycle, Sonnenshein explained, is conversion to ETFs. 

“If we look into the future and regulatory winds are blowing at our backs, we would anticipate that the Grayscale products will all move to be digital currency ETFs,” the CEO said during a virtual panel hosted by CoinDesk. 

Craig Salm, Grayscale’s head of legal, told Blockworks in an email that it’s difficult to predict when these conversions could happen without having seen any bitcoin exchange traded products yet approved in the US.

“Ultimately, we would expect the SEC to gradually approve these types of products for cryptocurrencies, with bitcoin coming first and probably Ethereum next,” Salm said, “as we believe those are the two assets they’ve looked at most closely.”

Sonnenshein urges SEC to ensure “even playing field”

Sonnenshein also reiterated his stance during the discussion that the SEC should approve GBTC’s conversion to an ETF at the same time that it greenlights futures-based bitcoin ETFs. 

David LaValle, recently hired to lead Grayscale’s ETF efforts, told Blockworks last month that futures-based bitcoin ETFs were “inferior” to ones that invest directly in bitcoin due to additional costs and operational complexity. Investors should be given the choice which type of product they prefer, he noted at the time. 

“The SEC I think certainly knows, and we sympathize with the fact that they realize that much of the developed world is looking to the SEC to see how they are in fact going to treat these assets,” Sonnenshein said Wednesday. “It’s really important that investors, advisers and everyone advocate for the fact that there should be an even playing field.”

SEC Chairman Gary Gensler has made it clear that the SEC favors a futures-based product under the Investment Company Act of 1940, said Bloomberg Intelligence Analyst James Seyffart, adding that a converted GBTC meets neither criteria.

Industry professionals have estimated that futures-based bitcoin ETFs filed by issuers such as ProShares and Invesco could be approved as early as the end of October. Seyffart said there is likely no chance of the SEC greenlighting the conversion of GBTC at the same time as a futures-based ETF.

“The SEC is basically choosing the sole structure that ETF investors can use, when I believe it should be up to the market and investor choice,” Seyffart told Blockworks. “I believe the market would dramatically and overwhelmingly put their money into a [spot] bitcoin ETF over a futures-based ETF if given the option to choose.” 

Grayscale fees would come down

Sonnenshein noted that the fees of Grayscale products would come down if converted to ETFs. GBTC currently carries a 2% annual fee.  

A Grayscale spokesperson did not comment on how much Grayscale might lower its fees upon conversion. 

Fees for Grayscale’s crypto offerings reflect legal costs, custodial fees and other costs associated with providing access to the asset class, Sonnenshein explained, and should not be compared “apples to apples” to mutual funds and ETFs.   

“If you’re sitting there as an advisor, you have not missed the boat yet and fees will come down over time,” he said. “But most importantly, fees should not be what deters someone from getting invested today. The risk-reward potential certainly outstrips what fees folks may be paying, and I think advisors generally understand that.”

  • Ben Strack is a Denver-based reporter covering macro economics, financial services and digital asset management. Prior to joining Blockworks, he covered the asset management industry for Fund Intelligence, and was a reporter and editor for various local newspapers on Long Island. He graduated from the University of Maryland with a degree in journalism.