Ben Strack

<div id="highlights-block_62bf684bc45fe" class="highlights">
 <ul>
 <li>Valkyrie CEO said Grayscale&#8217;s suit against the SEC is not likely to succeed</li>
 <li>Osprey Funds leader believes a spot bitcoin ETF will not be approved during SEC Chair Gary Gensler’s administration</li>
 </ul>
 
</div>



Grayscale Investments is crafting its initial arguments against the SEC following the agency’s denial of the company’s bitcoin ETF proposal, although some are unconvinced the decision will be overturned.



“Right now we’re just laser-focused on working with the court, setting up briefing schedules and going from there,” Grayscale Chief Legal Officer Craig Salm told Blockworks. “We think that we have very common-sense and compelling arguments here and we think the court will be able to see that as well.”



<a href="https://cms.blockworks.co/grayscale-sues-sec-over-rejection-of-proposed-spot-bitcoin-etf/" target="_blank" rel="noreferrer noopener">Grayscale filed</a> a <a href="https://www.docdroid.net/73OjnW4/dc-circuit-petition-for-review-as-filed-pdf" target="_blank" rel="noreferrer noopener">petition for review</a> with the US Court of Appeals for the District of Columbia Circuit Wednesday evening when the SEC rejected the conversion of its bitcoin trust (GBTC) to an ETF.&nbsp;



The firm expects to submit written arguments over the next couple months, Salm said. Grayscale’s attorneys estimate that the suit could take between nine and 12 months at the appellate level.&nbsp;



The company argues the SEC is acting “arbitrarily and capriciously” under the Administrative Procedures Act (APA), Salm said. The agency, he added, is also discriminating against issuers by <a href="https://cms.blockworks.co/proshares-bitcoin-futures-based-etf-to-begin-trading-tuesday/" target="_blank" rel="noreferrer noopener">approving futures-based bitcoin ETFs</a> but denying proposed spot-based bitcoin products.



“Both types of ETFs are priced based on the underlying bitcoin markets, and so if you’re OK with one for an ETF, then you also should be OK with the other,” Salm said Friday. “They’re two like investment vehicles that are just being treated [differently] in this situation.”&nbsp;&nbsp;



<h3>Will Grayscale win?</h3>



Dave Nadig, financial futurist at VettaFi, told Blockworks that the SEC’s congress-approved mandate gives the agency “extremely clear authority” to regulate rule-making about the activities of securities exchanges.&nbsp;



“I think it’s a very tough case for [Grayscale] to win,” he said. “The SEC explicitly is allowed to approve and deny exchange rules based, essentially, on whatever they like.”



To rule in Grayscale’s favor, Nadig added, the SEC would essentially have to decide that because it allowed derivatives products, it must allow a product focused on the underlying asset.&nbsp;&nbsp;



“This seems pretty stretchy to me,” he said. “By that logic, they’d have to allow all sorts of really unworkable products, like a physical oil product.”



Leah Wald, CEO of Valkyrie Funds, said in <a href="https://twitter.com/LeahWald/status/1542545687228940289" target="_blank" rel="noreferrer noopener">a series of Twitter posts</a> Thursday that suing the SEC is not likely to succeed, noting that regulators could potentially approve a spot<a href="https://twitter.com/hashtag/BTC?src=hashtag_click"> </a>bitcoin ETF before Grayscale’s lawsuit ends.



“Not many people expect this suit to go in favor of Grayscale and there isn’t much precedent for such an outcome to occur,” Wald tweeted. “But in order to keep assets flowing in and ensure institutions remain engaged, this is the only real move they have left.”



The SEC also rejected Bitwise Asset Management’s spot bitcoin ETF application this week.&nbsp; The San Francisco-based company <a href="https://cms.blockworks.co/bitwise-tries-once-more-for-spot-bitcoin-etp/" target="_blank" rel="noreferrer noopener">refiled its proposal last October</a>, attaching roughly 150 pages of research focused on price discovery in the crypto markets.



No spot bitcoin ETF has ever been approved in the US, and a number of industry watchers have said they <a href="https://cms.blockworks.co/crypto-execs-read-the-tea-leaves-on-spot-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">do not expect one to launch</a> until 2023 at the earliest.



Greg King, CEO of crypto fund issuer Osprey Funds, said the SEC’s decisions on the Grayscale and Bitwise applications were what he expected.



“We believe the SEC’s concerns around offshore trading of bitcoin have not been sufficiently addressed,” King told Blockworks in an email. “This rejection confirms our belief that no spot bitcoin ETF will be approved in [SEC Chair Gary] Gensler’s administration.”



Gensler’s current five-year term expires in 2026.



Some issuers continue to try to launch a product though, as asset manager VanEck <a href="https://cdn.cboe.com/resources/regulation/rule_filings/pending/2022/SR-CboeBZX-2022-035.pdf" target="_blank" rel="noreferrer noopener">filed</a> a new application for a spot bitcoin ETF. The firm’s previous application for such an offering <a href="https://cms.blockworks.co/sec-rejects-vanecks-proposed-spot-bitcoin-etf/" target="_blank" rel="noreferrer noopener">was denied</a> last November.&nbsp;



A VanEck spokesperson declined to comment on the filing. 



GBTC had about $12 billion in assets on Friday. The investment vehicle was <a href="https://ycharts.com/companies/GBTC/discount_or_premium_to_nav" target="_blank" rel="noreferrer noopener">trading at a 31% discount</a> to its net asset value (NAV) on Thursday, which was about 2 percentage points more than the day before the SEC’s decision.



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Grayscale Faces Uphill Battle With Lawsuit Against SEC

<div id="highlights-block_625890c0e5a8b" class="highlights">
 <ul>
 <li>Crypto-focused panels included executives from Grayscale Investments, MicroStrategy, 21Shares, Nasdaq and Valkyrie Investments</li>
 <li>The conference will become even more crypto-centric within three years, a Gemini executive said</li>
 </ul>
 
</div>



Some of the world’s largest asset managers, with little to no interest in crypto, shared the stage with prominent digital asset natives during this week’s Exchange ETF conference in Miami.&nbsp;



The event followed the swarms of bitcoiners — and piggybacking proponents of other cryptocurrencies — that flocked to the streets, clubs and waterways of Miami for <a href="https://b.tc/conference/" target="_blank" rel="noreferrer noopener">Bitcoin 2022</a>.



Pippa Malmgren, a tech entrepreneur and economist, kicked off the conference by calling blue-chip Bored Ape Yacht Club NFTs a “revolution in finance.”&nbsp;



She likened Web3 to a “Windows update,” saying the growth of the metaverse will force traditional financial titans to pay attention.



“You’re just going to be in it — whether you like it or not — because everything you work with is going to get upgraded into that space,” Malmgren said. “It’s a very different creative process that you engage in when you enter these spaces, and that is where we’re going in the world of finance.”



Michael Sonnenshein, chief executive of Grayscale Investments, spoke about the company&#8217;s proposed conversion of its Grayscale Bitcoin Trust (GBTC) to an ETF.



The leader of the largest crypto asset manager — with more than $35 billion in assets under management — <a href="https://cms.blockworks.co/grayscale-ceo-spot-bitcoin-etf-approval-is-the-next-natural-step-for-sec/" target="_blank" rel="noreferrer noopener">doubled down</a> on remarks that “all options would be on the table” if the SEC denied the proposal, including suing the agency.



MicroStrategy CEO Michael Saylor — speaking with Frank Holmes, executive chairman of HIVE Blockchain Technologies — meanwhile, said the US government’s move to regulate digital assets is <a href="https://cms.blockworks.co/michael-saylor-bullish-on-promise-of-crypto-regulation/" target="_blank" rel="noreferrer noopener">“a green light” for the crypto economy</a>. MicroStrategy, the biggest global corporate buyer of bitcoin, now holds about $4 billion of bitcoin.



Valkyrie Chief Investment Officer Steven McClurg and Dave LaValle, Grayscale’s head of ETFs, made their own case for the value of digital assets.



Asked by an attendee why investors should purchase a bitcoin ETF when they can already own the cryptocurrency outright, LaValle said an ETF takes some of the uncertainty or “extraneous education” of owning crypto out of the process.



McClurg added that while it’s important for individuals to own their own crypto, such an investment vehicle is key for professionals to bring exposure to clients.&nbsp;&nbsp;



“We are in a room with a bunch of financial advisors, and if your clients own the coin directly, you can’t get paid,” McClurg said. “The best wrapper for you to put your clients in something like this is either a [separately managed account] or an ETF, because it’s easy.”



<h3>Off the stage</h3>



More than 2,200 people attended, including nearly 1,000 financial advisers and institutional investors, according to Matt Hougan, chief investment officer of crypto-focused Bitwise Asset Management and a conference co-founder.



ETF providers, index providers, exchanges, trading firms and service providers were among the event’s 124 sponsors, including “a significant number of crypto market participants,” Hougan said.



The booths of the likes of crypto-focused Grayscale, Valkyrie, Bitwise, Gemini and Osprey surrounded the larger, traditional asset managers in one of the Fontainebleau hotel’s largest rooms.



<div class="wp-block-image"><figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="1024" height="576" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg" alt="exchange ETF conference Miami" class="wp-image-20136" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=464 464w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=1600 1600w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Company booths were set up inside the Fontainebleau hotel in Miami | Source: Ben Strack for Blockworks</figcaption></figure></div>



Next to ARK Invest, which focuses on disruptive innovation, was Vanguard, for example.



A Vanguard spokesperson told Blockworks in January that “the risks of investing in cryptocurrencies are high, and the investment case is weak.”



Financial services titan Fidelity Investments announced during the conference that the crypto economy and metaverse ETFs it <a href="https://cms.blockworks.co/fidelity-plots-crypto-etfs/" target="_blank" rel="noreferrer noopener">had filed for in January</a> are set to launch on April 21.



“These are obviously two topics that are hot and of interest to our clients, and we want to be able to solve their needs,” Greg Friedman, Fidelity’s head of ETF management and strategy, told Blockworks. “Crypto is just another asset class.”



The ETF event’s outdoor oceanside lunch was sponsored by 21Shares, the world’s largest issuer of crypto exchange-traded products and a firm hoping to launch a spot bitcoin ETF in the US with Ark Invest. The firm’s CEO, Hany Rashwan, joined Blockworks reporter Ben Strack on stage Wednesday as part of a panel with Jake Rapaport, Nasdaq’s head of digital asset index research.



The Exchange conference will be a crypto conference within three years, said Dave Abner, global head of business development at crypto exchange and custodian Gemini.



“There’s not that much to talk about with 5 basis point S&amp;P 500 ETFs anymore,” he told Blockworks. “[Crypto] is the stuff that’s interesting. These are the guys that are sponsoring the conference; money’s flowing in that direction.”



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Crypto and TradFi Collide at Miami ETF Conference

<div id="highlights-block_624cbd01af609" class="highlights">
 <ul>
 <li>Avalanche and Polkadot join BTC, ETH and six other tokens in the digital currency asset manager’s $480 million Digital Large Cap Fund</li>
 <li>Grayscale had added 25 assets to its list of investments under consideration in January</li>
 </ul>
 
</div>



Grayscale Investments is adding three cryptoassets across its three diversified funds and removing two others from the products as part of a quarterly rebalance.&nbsp;



The asset manager’s Digital Large Cap Fund has bought Avalanche (AVAX) and Polkadot (DOT), the firm told Blockworks. No tokens were removed from the fund.



The fund, which launched in 2018 and has $480 million assets under management, enables investors to gain exposure to the upper 70% of the digital currency market.



AVAX and DOT each have market capitalizations above $24 billion, according to data compiled by Blockworks — ranking 10th and 11th, respectively.&nbsp;



The two cryptoassets join bitcoin (BTC), ether (ETH), solana (SOL), cardano (ADA), uniswap (UNI), chainlink (LINK), litecoin (LTC) and bitcoin cash (BCH) in the fund. Combined, AVAX and DOT’s allocation in the fund is about 3.3%.



Grayscale has also added Cosmos (ATOM) to its Smart Contract Platform Ex-Ethereum Fund. No assets were removed as a result of the rebalancing.&nbsp;



ATOM has a market cap of roughly $8.6 billion, which is the 23rd highest among crypto tokens, ahead of LINK and behind LTC. 



The investment vehicle, which offers investors the chance to bet on Ethereum’s largest competitors, <a href="https://cms.blockworks.co/grayscales-latest-fund-focuses-on-smart-contract-platforms/" target="_blank" rel="noreferrer noopener">launched last month</a>. The index-tracking fund’s original holdings were ADA, SOL, AVAX, DOT, Polygon (MATIC), Algorand (ALGO) and Stellar Lumens (XLM). ATOM now makes up roughly 5% of the Grayscale DeFi Fund.



Though no tokens were added to Grayscale’s DeFi Fund, two were removed.&nbsp;



Both SushiSwap (SUSHI) and Synthetix (SNX) were omitted from the fund after failing to meet the market capitalization requirements, according to a Grayscale spokesperson.&nbsp;



SNX’s market cap is slightly less than $1.4 billion, according to data compiled by Blockworks. SUSHI’s market cap is roughly $800 million.



The DeFi fund launched last July and has about $8 million in assets. Cryptoassets remaining in the fund are UNI, Aave (AAVE), Curve (CRV), MakerDAO (MKR), Amp (AMP), Yearn Finance (YFI) and Compound (COMP).



Grayscale added 25 assets to <a href="https://cms.blockworks.co/grayscale-considers-25-new-digital-assets/" target="_blank" rel="noreferrer noopener">a running list of investments</a> it is considering making available to investors in January. Though AVAX and DOT were previously on the list, ATOM was added at that time.



The firm continues to update the list as the digital asset ecosystem expands and it reviews more assets, Grayscale said at the time.



“The process of creating an investment product similar to the ones we already offer is a complex, multifaceted process,” the company said in a statement. “It requires significant review and consideration and is subject to our internal controls, custody arrangements, and regulatory considerations, among other things.”



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Grayscale Adjusts Cryptoassets Exposure in Diversified Funds

<div id="highlights-block_62399984f5576" class="highlights">
 <ul>
 <li>The fund’s top holdings are Cardano and Solana</li>
 <li>Grayscale’s investors are “not looking to pick winners,” CEO Michael Sonnenshein says</li>
 </ul>
 
</div>



Grayscale Investments has launched a fund that allows investors to bet on Ethereum’s largest competitors in the smart contract space.



The Grayscale Smart Contract Platform ex Ethereum Fund is a market capitalization-weighted portfolio that tracks the CoinDesk Smart Contract Platform Select Ex ETH Index.



Smart contracts are programs run on blockchains that automatically carry out their coded functions when certain conditions are met. They allow users to move funds, create decentralized finance (DeFi) applications and represent the ownership of non-fungible tokens (NFTs).



The fund’s top holdings, as of March 16, were Cardano (ADA) and Solana (SOL), each at roughly 24%. Avalanche (AVAX) and Polkadot (DOT) account for about 17% and 16%, respectively, of the portfolio. The fund also allocates to Polygon (MATIC), Algorand (ALGO) and Stellar (XLM).



Grayscale CEO Michael Sonnenshein called the smart contract platform ecosystem an “emerging area” within crypto.



<blockquote class="wp-block-quote">“Our investors continue to seek diversification within their crypto holdings,” he told Blockworks. “They’re not looking to pick winners and prefer seamless access through a diversified product structure.”</blockquote>



Though many investors allocated to Ethereum amid its growth over the past year, there is demand for other smart contract platforms too, according to CoinDesk Indices Managing Director Jodie Gunzberg.



Ethereum’s market capitalization is about $350 billion. Its price, as of 8 am ET on Tuesday, was about $3,020, according to <a href="https://cms.blockworks.co/prices/" target="_blank" rel="noreferrer noopener">data compiled by Blockworks</a> — up 68.6% from a year ago. 



ADA and SOL have market caps currently hovering around $30 billion.



Currently, at $0.95, ADA’s price is down 19.7% in the past year. SOL’s price has risen 542% from a year ago to $91.90.



The new fund is open for daily subscription by eligible individuals and institutional accredited investors and has a 2.5% annual fee.



Grayscale now has 18 investment products, three of which are diversified offerings. As the world’s largest digital currency asset manager, Grayscale managed nearly $40 billion in assets as of March 18.



Sonnenshein said Grayscale is constantly evaluating new protocols to include in the firm’s product family to meet demand.



In January, the company <a href="https://cms.blockworks.co/grayscale-considers-25-new-digital-assets/" target="_blank" rel="noreferrer noopener">added 25 assets</a> to a list of investments it is considering making available to investors. The announcement follows the firm’s <a href="https://cms.blockworks.co/grayscale-launches-first-etf/" target="_blank" rel="noreferrer noopener">launch of its first ETF</a>, the Grayscale Future of Finance ETF (GFOF), last month. The fund, which carries an expense ratio of 70 basis points, has $14 million in assets.



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