Grayscale Seeks to Launch its First Equity ETF

Proposed fund focused on companies involved in digital assets comes as firm awaits approval to convert GBTC to an exchange traded fund.

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Michael Sonnenshein, CEO, Grayscale Investments; Blockworks exclusive art by axel rangel

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key takeaways

  • The proposed passively managed ETF is designed to offer investors exposure to the growing intersection of finance, technology, and digital assets
  • Grayscale’s brand can help the fund stand out in an increasingly crowded field, ETF.com crypto editor says

As Grayscale Investments awaits approval to convert its flagship bitcoin trust to an ETF, the firm becomes the latest company looking to launch a fund that would offer indirect exposure to bitcoin and other crypto assets through a Grayscale equity ETF. 

The Grayscale Future of Finance ETF (GFOF) would track an index consisting of US and non-U.S. equity securities involved in the advancement of the digital economy, according to a November 5 regulatory filing

This includes “companies involved in the enabling of buying, selling, and transacting in digital assets, the development of the infrastructure to create applications utilizing blockchain technology, the supply of infrastructure around the digital asset ecosystem, and the mining of digital assets,” the document notes. 

GFOF will not invest in digital assets directly or through the use of derivatives, and will also not invest in initial coin offerings.

The proposed ETF, which does not yet have an expense ratio listed, would be subadvised by Vident Investment Advisory. Its custodian would be US Bank, which announced the roll-out of its crypto custody services for fund managers last month.

“Since our founding in 2013, we have worked to create a suite of secure, familiar investment products that provide investors with access to the digital economy,” a Grayscale spokesperson told Blockworks. “[Friday’s] filing is yet another example of how Grayscale will continue to diversify its product family to meet the increasing demand for future-forward investment opportunities.” 

The filing for what would be Grayscale’s first equity ETF comes as the firm is seeking to convert the Grayscale Bitcoin Trust (GBTC) into an ETF. That fund, which has its shares quoted on OTCQX, has 39.7 billion assets under management.

A handful of other issuers await regulatory clarity for their ETFs that would invest directly in crypto assets. The SEC’s final deadline to rule on VanEck’s bitcoin ETF — meaning the SEC cannot again postpone its decision — is November 14. 

US Reps. Tom Emmer (R-Minn.) and Darren Soto (D-Fla.), wrote a letter to SEC Chairman Gary Gensler last week urging the agency to permit physically backed bitcoin ETFs to begin trading.  

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In the meantime, the number of ETFs offering indirect exposure to bitcoin and other crypto assets continues to grow.

An increasingly crowded field

ProShares launched the first bitcoin futures ETF on October 19, and Valkyrie Investments launched a similar fund three days later. The first-to-market product has grown to $1.3 billion assets under management, while the assets in Valkyrie’s offering total about $52 million.

Other ETFs already on the market invest in the crypto industry more broadly.

Sumit Roy, crypto editor and analyst at ETF.com, said Grayscale’s name recognition, distribution and social media presence will likely help its proposed ETF attract assets. However, he noted, many of Grayscale’s products, most notably GBTC, benefited from being the first mover.

“This latest ETF is somewhat of a late mover and is facing competition from a handful of ETFs already on the market that hold stocks of crypto-related companies,” he said.

Amplify Investments’ actively managed Transformational Data Sharing ETF (BLOK), which has taken the largest share of flows among US blockchain ETFs, stands at $1.6 billion assets under management, with more than half of those assets entering the fund in 2021, Roy noted.

On the passively managed side, the Siren Nasdaq NexGen Economy ETF (BLCN), which became available in 2018, holds more than $300 million. Bitwise Asset Management’s Crypto Industry Innovators ETF (BITQ), which launched in May, now has more than $110 million in assets, while Global X’s Blockchain ETF (BKCH), which hit the market in July, has about $87 million. 

Most recently, Valkyrie applied with the SEC to launch an ETF that would invest in bitcoin miners and another focused on companies involved in the space, such as bitcoin custodians, exchanges or traders, as well as those that invest in or have a portion of their assets accounted for by direct bitcoin holdings.

Roy said he believes Grayscale’s proposed ETF could ultimately differentiate itself within the crowded field.

“Grayscale is just such a strong brand within the crypto community and even though there is competition from BLOK and others, it is still pretty early for an ETF category that is likely to grow many-fold from here in the years to come,” he explained. “Ultimately, the performance of these funds — which are likely to vary significantly from ETF to ETF — may drive flows and play a part in determining which ends up being the biggest.”

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