Ben Strack

<div id="highlights-block_6125407338b27" class="highlights">
 <ul>
 <li>Institutional-grade indexing “a critical component” of Galaxy’s mission as firm embarks on capabilities expansion</li>
 <li>Canada-based BIGG Digital Assets and Voyager Digital, as well as Germany’s Northern Data AG, among top holdings in most of the indexes</li>
 </ul>
 
</div>



<a href="https://www.galaxydigital.io" target="_blank" rel="noreferrer noopener">Galaxy Digital</a>’s fund management arm has teamed up with Alerian and S-Network Global Indexes to launch two index families focused on blockchain and cryptocurrency in an effort to offer institutional-grade solutions for a growing investor base.



The Alerian Galaxy Global Indexes provide exposure to public companies and certain investment vehicles engaged in the expanding sectors. The indexes — rebalanced monthly and equally weighted — primarily include miners, infrastructure technologies, cryptocurrency buyers and blockchain users.



<blockquote class="wp-block-quote">“Our mission is to further the adoption of digital assets, which includes helping investors navigate a rapidly evolving ecosystem,” Steve Kurz, Galaxy’s head of asset management, told Blockworks in an email. “Institutional-grade indexing is a critical component of that mission, and our partnership with Alerian continues to expand the palette of investment options in the crypto and blockchain space.” </blockquote>



Among the eight indexes, the Alerian Galaxy Global Blockchain Index (BCHAIN) and the Alerian Galaxy Global Cryptocurrency-Focused Blockchain Index (CRYPTO) each have the Grayscale Bitcoin Trust and the Grayscale Ethereum Trust as its two largest holdings, at about 8% and 7%, respectively.



Canada-based BIGG Digital Assets and Voyager Digital, as well as Germany’s Northern Data AG were other top holdings in both indexes, as of July 23. While BCHAIN has names like Facebook, Microsoft, Alphabet and Mastercard among its top 10 holdings, firms such as Square, Argo Blockchain and Bitfarms round out CRYPTO’s top 10.



The product expansion comes after Galaxy Digital last week <a href="https://cms.blockworks.co/galaxy-digital-launches-new-institutional-defi-fund/" target="_blank" rel="noreferrer noopener">partnered with Bloomberg</a> to launch a fourth joint index, which focused on decentralized finance. The firm has also created the Galaxy DeFi Index Fund, which will track the performance of the index.



Galaxy had $1.6 billion in assets under management as of July 31, and is looking to rapidly expand its capabilities to provide exposure to “every investable corner” of the crypto and blockchain ecosystems, the firm said in a news release.



<h3 class="wp-block-heading">A strong alternative</h3>



This planned push comes as <a href="https://www2.deloitte.com/us/en/insights/topics/understanding-blockchain-potential/global-blockchain-survey.html" target="_blank" rel="noreferrer noopener">Deloitte’s 2021 Global Blockchain Survey</a> found that 76% of respondents believe digital assets will serve as a strong alternative to, or replacement for, fiat currencies in the next five to 10 years.   



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="886" height="441" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Screen-Shot-2021-08-24-at-2.06.21-PM.png" alt="Deloitte 2021 survey on the future of digital assets" class="wp-image-6940" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Screen-Shot-2021-08-24-at-2.06.21-PM.png?w=886 886w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Screen-Shot-2021-08-24-at-2.06.21-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Screen-Shot-2021-08-24-at-2.06.21-PM.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Screen-Shot-2021-08-24-at-2.06.21-PM.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Screen-Shot-2021-08-24-at-2.06.21-PM.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Screen-Shot-2021-08-24-at-2.06.21-PM.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Screen-Shot-2021-08-24-at-2.06.21-PM.png?w=80 80w" sizes="(max-width: 886px) 100vw, 886px" /></figure></div>



Galaxy reported <a href="https://cms.blockworks.co/galaxy-shares-2q-loss-but-novogratz-bullish-on-defi-and-nfts/" target="_blank" rel="noreferrer noopener">second quarter losses</a> earlier this month amid a 41% decline in the price of Bitcoin, relative to the end of the first quarter. But CEO Michael Novogratz shared continued bullishness on the cryptocurrency, as well as DeFi and NFTs, during the call.



Compass Point Research &amp; Trading equity analyst Michael Del Grosso gave the company a neutral rating but called Galaxy “the bellwether bank of crypto” in an Aug. 16 research note.



“We see Galaxy as a first-mover in the crypto prime brokerage, trading, asset management, venture capital, investment banking, and mining financing businesses,” he wrote. “While we are encouraged about its prospects longer-term, we believe the current lack of viability into recurring revenue streams leave us on the sidelines given the nascency of the existing businesses and current valuation.”



<h3 class="wp-block-heading">Indexing as a strategy</h3>



Matt Hougan, CIO of Bitwise Asset Management, <a href="https://cms.blockworks.co/qa-why-bitwise-believes-indexing-is-a-superior-crypto-strategy/" target="_blank" rel="noreferrer noopener">has told Blockworks</a> he believes that indexing is a superior strategy in the crypto realm. Index products are especially attractive to financial advisors who want to make sure they’re participating in the potential upside of crypto without having to make individual active bets, he argued.  



“Index-based investing is continuously evolving and expanding into new asset classes and exposures to support the ever-growing demand from investors,” Robert Hughes, chief commercial officer of Alerian and S-Network Global Indexes, said in a statement. “Galaxy Fund Management was a natural partner as we sought to enter the decentralized finance space given Galaxy Digital’s industry leading history, deep connectivity, and unparalleled innovation delivering this new asset class to investors.”



Want more investor-focused content on digital assets? <a target="_blank" href="https://cms.blockworks.co/events/digital-asset-summit-2021-2/" rel="noreferrer noopener">Join us</a> September 13th and 14th for the Digital Asset Summit (DAS) in NYC. Use code ARTICLE for $75 off your ticket. <a target="_blank" href="https://cms.blockworks.co/events/digital-asset-summit-2021-2/" rel="noreferrer noopener">Buy it now</a>.

Galaxy and Alerian Join Forces to Launch Eight Crypto Indexes

<div id="highlights-block_610addba10ec4" class="highlights">
 <ul>
 <li>Regulatory approval of the Grayscale Bitcoin Trust to become an ETF would accelerate investor comfort with the asset class, firm’s new ETF head says</li>
 <li>Grayscale’s goal is to have GBTC conversion approved at or around same time as greenlighting of other bitcoin ETFs, according to Bloomberg Intelligence analyst</li>
 </ul>
 
</div>



Grayscale Investments has hired the former CEO of Alerian to lead the firm in its push to convert its flagship product into an ETF.



David LaValle enters Grayscale’s newly created global head of ETFs role, the firm announced Wednesday. He had been the CEO of <a href="https://www.alerian.com" target="_blank" rel="noreferrer noopener">Alerian</a> and S-Network Global Indexes, and also previously worked as the US head of SPDR ETF Capital Markets for State Street Global Advisors.&nbsp;



An Alerian spokesperson declined to comment on who would replace LaValle as CEO of the firm.



Before State Street, LaValle headed Nasdaq’s Exchange Traded Product Marketplace, leading strategy and business development for Nasdaq’s ETP listing and trading businesses.



“The opportunity for me to leverage all of the experiences I have had in each one of those key pillars of the ETF ecosystem and then marry that with Grayscale’s brand in an asset class that is clearly growing and gaining wider acceptance not only from retail investors but institutions at large, was an opportunity that I simply could not pass up,” LaValle told Blockworks.



Grayscale <a href="https://cms.blockworks.co/grayscale-filing-to-convert-gbtc-to-etf/" target="_blank" rel="noreferrer noopener">filed earlier this year </a>to convert its Grayscale Bitcoin Trust (GBTC), the world’s largest bitcoin investment vehicle, to an ETF. The product, which launched in 2013 and is traded publicly on the <a href="https://www.otcmarkets.com/index.html" target="_blank" rel="noreferrer noopener">OTCQX</a>, currently has $25 billion in assets under management.&nbsp;



Grayscale CEO Michael Sonnenshein said last month during an interview with SiriusXM that the firm began speaking with the SEC about morphing GBTC into an ETF in 2016.



“We are 100% committed to converting Grayscale Bitcoin Trust (GBTC), Grayscale Ethereum Trust (ETHE) and our other investment products into ETFs,” Sonnenshein wrote in his <a href="https://grayscale.com/2021-ceo-midyear-investor-letter/" target="_blank" rel="noreferrer noopener">midyear investor letter</a> last month. “We are eager to see the crypto ecosystem reach a point of maturation to give US regulators and policymakers the requisite comfort to approve digital currency ETFs, though timelines remain uncertain.”



LaValle noted the evolution of ETFs, which has become more widely accepted as a high-quality wrapper to deliver an investment strategy to the broadest range of investors. Though the first ETFs were US equity offerings, the executive explained, the wrapper now houses international equities, commodities and fixed income strategies. Crypto ETFs are a “natural evolution” of the wrapper bringing an asset class to market to be consumed by all investors equally, he added.



“Certainly regulation and the ability to actually create and launch and list and trade an ETF is the largest hurdle that we have, but the beauty of that is the conversation has shifted certainly from if there will be a bitcoin ETF to when will there be a bitcoin ETF?” he said. “&#8230;It will certainly act as an accelerant for people to get comfortable with that asset class because it will be traded on an exchange and in a wrapper that people are already comfortable with.”



Grayscale is looking to continue building out its ETF team,<a href="https://boards.greenhouse.io/grayscaleinvestments" target="_blank" rel="noreferrer noopener"> job postings show</a>, as the firm is looking to hire ETF sales directors, a product development specialist and a compliance officer, among other roles.&nbsp;



<h3 class="wp-block-heading">When could the conversion happen and what is its effect on GBTC?</h3>



As about a dozen bitcoin ETFs await approval from the SEC, the Grayscale Bitcoin Trust has been an inefficient option for investors, said James Seyffart, an ETF analyst at Bloomberg Intelligence.&nbsp;



GBTC trades over the counter at premiums and discounts because shares can&#8217;t be created at will like an ETF. The product has traded at a steady discount to NAV since February, reaching as much as 21%, Seyffart explained.



“I think the SEC should at least consider allowing them to convert right around the time [the other ETFs are approved],” he said. “Because if there’s a huge gap — say weeks or months — before GBTC can convert to an ETF&#8230;I think we’ll see that discount balloon up even more.”



Though the approval of bitcoin ETFs would mean Grayscale’s “moat” in this space would disappear, the competition will be positive for end investors by driving down costs and improving efficiencies, Seyffart argued.&nbsp;&nbsp;



But regulatory clarity around ETFs remains murky. While issuers like <a href="https://cms.blockworks.co/global-x-adds-to-stack-of-bitcoin-etfs-proposed-to-sec/" target="_blank" rel="noreferrer noopener">Global X</a> have most recently added to the pile of bitcoin ETFs to be considered by the SEC, the agency has <a href="https://cms.blockworks.co/sec-postpones-decision-on-valkyrie-bitcoin-etf-to-august/" target="_blank" rel="noreferrer noopener">postponed its decision</a> to approve or deny similar products from other issuers.&nbsp;&nbsp;



SEC Chairman <a href="https://cms.blockworks.co/sec-chair-gensler-prioritizes-crypto-platform-crackdown/">Gary Gensler said during the Aspen Security Forum</a> on Tuesday said that he looks forward to the SEC’s review of ETFs under the Investment Company Act, or ‘40 Act, noting that the ‘40 Act provides investor protections.&nbsp;



But like some gold ETFs currently on the market, the GBTC ETF would be structured as a grantor trust, Seyffart explained, which falls outside the ‘40 Act structure.&nbsp;



“I don’t really know exactly how [Gensler’s] going to feel about converting GBTC,” he said.



“My personal opinion is [the SEC] just needs to accept the way that it is. Look at ETFs in Europe and Canada and they’re all working just fine.”



Having one cryptocurrency — likely bitcoin first — in the ETF structure will allow Grayscale to see what regulators need to allow for others within the asset class to be wrapped in an ETF, LaValle said.&nbsp;



“I think it’s really kind of a sequential approach and a matter of incremental steps,” he told Blockworks. “That transparency will afford us the opportunity to kind of plot the appropriate course that we think will be both acceptable by the regulators, but also meet the demand of our clients.”



Want more investor-focused content on digital assets? <a target="_blank" href="https://cms.blockworks.co/events/digital-asset-summit-2021-2/" rel="noreferrer noopener">Join us</a> September 13th and 14th for the Digital Asset Summit (DAS) in NYC. Use code ARTICLE for $75 off your ticket. <a target="_blank" href="https://cms.blockworks.co/events/digital-asset-summit-2021-2/" rel="noreferrer noopener">Buy it now</a>.