Gone Crypto: Why Sonnenshein Left Traditional Finance to Join Grayscale

Michael Sonnenshein entered the cryptocurrency world in its earliest days, came up under the tutelage of crypto investor Barry Silbert, and now runs one of the most high profile companies in crypto, with the largest bitcoin investment product. 

“When I joined what has now become Grayscale,” previously Second Market, “we had one investment product and about $60 million in AUM,” Sonnenshein told Blockworks. “We were about five employees, at one point we were only down to two. Eight years later, we now have over $50 billion of assets under management, 14 investment products and we’re up to 34 full time team members.”

Today, Sonnenshein is the CEO. Silbert stepped down from that role in January and has been giving more attention to Grayscale’s parent company, Digital Currency Group (DCG), a venture capital company focused on the digital currency market.

Traditional finance roots

Sonnenshein studied finance and organization management in his undergrad years at Emory University’s Goizueta Business School before moving back to New York, where he grew up. In 2008 Bank of America recruited him for an 18-month rotational program at the bank. He was working on working on underwriting middle market credit when the financial crisis hit. 

Craving more development, he pivoted to wealth management and started a job at Barclays — before he had any of his securities licenses.

Before he knew it he was day trading commodities for family offices, doing equity trading for hedge funds and all kinds of asset managers and helping ultra high net worth individuals design asset allocations. A couple years later, he moved into a similar role at JPMorgan Securities.

“It was such a zero to 60 for me,” he said.

Solid beginnings to bitcoin

Sonnenshein called his experience in wealth management a formative one that gave him exposure to equities, fixed income, ETFs and every other asset class – even credit default swaps.

More than that, it provided him with a “solid foundation understanding of the underpinnings of the financial system,” he said — “the ways securities move around, cash moves around, the way different systems speak to each other, what governs a lot of these transactions, what holds them up, where the pain points and the friction are.”

He recalled the first time he’d heard of bitcoin. 

“I remember in 2013 sitting in my office at JPMorgan and seeing bitcoin very sporadically jump onto the screen on CNBC,” he said. “I don’t think any one of us, myself included, thought much of it. No one was even interested, if anything, it was kind of a nuisance, people wanted to just get back to Caterpillar earnings or whatever else CNBC was covering.”

That winter he was “itching” to make a change and began his MBA at New York University’s Stern School of Business. He quickly realized he was the only one showing up for his classes after work in a “bank uniform,” while so many others were there preparing to take over family businesses or start businesses of their own.

“It started to reshape my preconceived and somewhat myopic definition of success,” he said.

A rare opportunity

Among many interviews with hedge funds, family offices and other smaller shops, Sonnenshein applied to a role at SecondMarket, the predecessor firm that started many of the digital currency activities and initiatives that would become the foundational elements of Grayscale, as well as Genesis, which is also under the DCG umbrella. 

The job was for a sales role in which he would help raise assets for what is now the Grayscale Bitcoin Trust. (Silbert sold SecondMarket in 2015.)

“I had never heard of the company, I didn’t really know much about bitcoin, but was convinced to go on the interview. I was quickly convinced that it was going to be very rare in my career that I would have the opportunity to be a part of building something — I’d only had experiences at large banks where you’re part of a relatively well oiled machine.”

Sonnenshein described himself as “steadfastly loyal to Barry and to the vision that he set out” to accelerate the development of a better financial system through the proliferation of digital assets and blockchain technology. He credits Barry with a lot of his bitcoin education.

Financial inclusion springboard

There’s one particular conversation they had early on that helped make the idea click for Sonnenshein, he said. They talked deeply about what constitutes money, about bitcoin potentially being the springboard for financial inclusion and its potential to change the world.

“We take for granted, living in the developed world, how much financial infrastructure is available to us — banking, lending, credit, you name it,” Sonnenshein said. “That’s when I had a lightbulb moment where it all of a sudden was very clear to me. I’ve been fortunate to travel quite a bit in my life personally, often to parts of the developing world, where I’ve seen firsthand how poor financial infrastructure is and how detrimental it can be for individuals’ opportunities, individuals’ ability to save money, to pass it to the next generation, finance a business, finance an education. The combination of those factors led me to think about some of the applications that got me excited about working in crypto.”

That’s not exactly Grayscale’s role in the ecosystem, however. The company operates the world’s largest bitcoin investment product, Grayscale Bitcoin Trust (GBTC), as well as 12 others focused on other cryptocurrencies. 

Shares usually trade at a premium to the price of bitcoin, which Grayscale makes money from, though they can also trade at a discount. It also offers a diversified “digital large cap” fund. Grayscale currently has $47.6 billion in AUM. 

Still, the company does its part to further bitcoin’s potential to improve legacy systems, Sonnenshein said. The company strives to mold the perception, governance and use cases that ultimately draw more participation into the ecosystem, to ensure bitcoin has a fair shot at being that springboard to financial inclusion, he said.

“We’ve been a good, stable actor, mature actor in what is a nascent asset class moving very quickly,” he said. “We make sure we’re acting in a capacity that is super regulated, buttoned up, and ensure the crypto industry continues to be supported by the right types of organizations with the right missions.”

Waiting for the watershed moment

Anyone can purchase GBTC shares, but only accredited investors can participate in the daily private placements.

Grayscale plans to convert GBTC into an ETF, pending regulatory approval. The fund doesn’t trade on a national securities exchange or have simultaneous creations and redemptions. An ETF would offer both of these benefits. Industry participants and observers have been keen to see a bitcoin ETF approval for years. The SEC has never approved one. 

While Sonnenshein said he sees GBTC as proof some investors aren’t waiting for one to participate in this asset class, he also sees the evidence that so many others “would only participate or would be much more inclined to participate in bitcoin, if there were an ETF,” he said. 

When one finally comes, “it’ll be a watershed moment for the industry as a whole and broaden access for a lot of investors who may be waiting for it,” he added.

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