Ben Strack

Though Grayscale remains committed to trying to convert its Bitcoin Trust (GBTC) to an ETF, the firm’s CEO said the firm could explore other options to return a portion of GBTC’s capital to shareholders.



But the trust, which <a href="https://ycharts.com/companies/GBTC/discount_or_premium_to_nav" target="_blank" rel="noreferrer noopener">was trading</a> at about a 48.6% discount to its net asset value (NAV) on Friday, is still not interested in offering redemptions.



Michael Sonnenshein, the digital currency asset manager’s CEO, said in <a href="https://grayscale.com/wp-content/uploads/2022/12/2022-End-of-Year-Investor-Letter.pdf" target="_blank" rel="noreferrer noopener">a letter to investors</a> that if it is unsuccessful in converting GBTC to an ETF, the firm would consider a tender offer amounting to no more than 20% of the outstanding shares of GBTC. 



A tender offer is a public solicitation to shareholders requesting that they tender their shares for sale at a specific price during a certain time. Details related to such a tender offer would be provided at the time it takes place, a spokesperson told Blockworks.



Dave Nadig, a financial futurist at data company VettaFi, said that while he agrees with Grayscale that a spot bitcoin ETF should probably exist, he is skeptical that suing the SEC to convert an over-the-counter trust into one is the best way to get there. Nadig said the tender offer would help reduce the GBTC discount but is no panacea.



<blockquote class="wp-block-quote">
“[It] wouldn’t solve the fundamental problem that the one-way-door that is GBTC is a tough way to gain exposure to bitcoin,” he told Blockworks.
</blockquote>



Bloomberg Intelligence ETF Analyst James Seyffart agreed with Nadig, but said he believes the best solution remains for Grayscale and its investors is to convert GBTC to an ETF.&nbsp;



“They need a [<a href="https://www.sec.gov/interps/legal/mrslb9.htm" target="_blank" rel="noreferrer noopener">Regulation M</a>] exemption to offer redemptions and keep the trust operating,” Seyffart told Blockworks. A Reg M exemption is automatic in the case of an ETF conversion, but <a href="https://blockworks.co/news/the-grayscale-dilemma-a-record-discount-and-a-golden-goose" target="_blank" rel="noreferrer noopener">could also be requested independently</a>, if Grayscale opted to do so.



<h3 class="wp-block-heading">No interest in offering redemptions</h3>



Grayscale is still not interested in offering a redemption program for the trust, Sonnenshein said in the letter.&nbsp;



“In the event we are unsuccessful in pursuing options for returning a portion of the capital to shareholders, we do not currently intend to dissolve GBTC, but would instead continue to operate GBTC without an ongoing redemption program until we are successful in converting it to a spot bitcoin ETF,” the CEO wrote.



Fir Tree Capital Management <a href="https://blockworks.co/news/lawsuit-against-grayscale-likely-to-drag-on" target="_blank" rel="noreferrer noopener">filed a complaint</a> in Delaware’s Court of Chancery in an effort to gain information into the potential “mismanagement” of GBTC. 



The complaint states: “In the absence of any legal prohibition that would restrict the trust from accommodating redemptions, Grayscale appears to be maintaining this untenable status quo to enrich itself, its management, and its affiliates.”



When asked Monday why GBTC would continue operating without a redemption program if not approved to convert to an ETF, a Grayscale spokesperson told Blockworks the firm believes an ETF is “the best long-term product structure and remains confident that a spot bitcoin ETF is a matter of when, not if.”



Seyffart told Blockworks that while redemptions would likely be a good solution for GBTC investors, it would be bad for Grayscale and likely a negative development for bitcoin’s price. The fund holds about 630,000 bitcoin, he said.&nbsp;



<blockquote class="wp-block-quote">
“A significant portion of those coins being sold on the open market certainly wouldn&#8217;t be a positive situation for bitcoin,” Seyffart said.
</blockquote>



Bitcoin’s price was about $16,700, as of 10:30 am ET — down about 2% from a week ago.&nbsp;



<h3 class="wp-block-heading">More waiting</h3>



A potential tender offer would be considered only after GBTC is unsuccessful in converting GBTC to an ETF, Sonnenshein said in the letter.&nbsp;



That could be awhile.&nbsp;&nbsp;&nbsp;



<a href="https://blockworks.co/news/grayscale-lawsuit-moves-forward-as-gbtc-discount-widens" target="_blank" rel="noreferrer noopener">Grayscale filed its first brief</a> against the SEC in October. Craig Salm, the company’s chief legal officer, said at the time he expects the suit to take between nine and 12 months.



The litigation stems from the SEC <a href="https://blockworks.co/grayscale-sues-sec-over-rejection-of-proposed-spot-bitcoin-etf" target="_blank" rel="noreferrer noopener">denying GBTC’s proposed conversion</a> to a spot bitcoin ETF earlier this year.



The firm is drafting its response to the SEC’s latest brief and is set to submit it by Jan. 13. Final written briefs are slated to be submitted by Feb. 3, as a three-judge panel will then be selected to hear oral arguments and rule on the case.



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GBTC Not Interested in Redemptions, but Considering Other Options

<div id="highlights-block_62ba091a32e88" class="highlights">
 <ul>
 <li>Roughly 11,400 comment letters about Grayscale’s application have been submitted to the SEC since November</li>
 <li>The investment vehicle has traded at a discount of roughly 30% to its net asset value in recent weeks</li>
 </ul>
 
</div>



While crypto-focused asset manager Grayscale Investments is optimistic ahead of the SEC’s decision on giving the greenlight to the firm’s long-proposed conversion of its bitcoin trust to an ETF, the company’s CEO said it’s preparing for all possible scenarios.&nbsp;



“We remain encouraged by the SEC’s actions over the past eight months, which have signaled an increased recognition of and comfort with the maturity of the underlying bitcoin market,” CEO Michael Sonnenshein said in <a href="https://grayscale.com/pending-gbtc-decision-investor-letter/?sfclid=00Q5G00000Z914hUAB&amp;utm_source=news&amp;utm_medium=email&amp;utm_campaign=1078&amp;utm_content=cta-button&amp;mkt_tok=MDAwLUVVRS0xMjUAAAGFRIM99XpZ5c1NRzm79h3LjBcBAg3pPYwe-ZVw5inUfEzR89qwiktScbuPjSiAm7LJbzf7Q-9AGw_Fk7VH0OIO28UH-5NqkoBtiWgN0g" target="_blank" rel="noreferrer noopener">a Monday letter</a> to investors. 



The SEC approved the first ETFs to invest primarily in bitcoin futures contracts last October. The agency also last week gave the go ahead to <a href="https://cms.blockworks.co/proshares-to-launch-first-us-etf-thats-bearish-on-bitcoin/" target="_blank" rel="noreferrer noopener">a bearish vehicle managed by fund issuer ProShares</a> designed to deliver the inverse performance of the S&amp;P CME Bitcoin Futures Index.



Sonnenshein tweeted at the time that the latter approval shows bitcoin’s price discovery is supported by a derivatives market “robust enough” to offer short exposure to retail investors.&nbsp;&nbsp;



The Grayscale Bitcoin Trust (GBTC), which has $13.5 billion of assets, is operationally ready to convert into an ETF when it is granted approval, Sonnenshein added. The investment vehicle has traded at <a href="https://ycharts.com/companies/GBTC/discount_or_premium_to_nav" target="_blank" rel="noreferrer noopener">a discount of roughly 30%</a> to its net asset value (NAV) in recent weeks.



“But, as you know, the SEC continues to prohibit spot-based ETFs from coming to market, so the Grayscale team has been preparing for all possible post-ruling scenarios,” he said in the Monday letter.



Grayscale earlier this month <a href="https://cms.blockworks.co/grayscale-investments-hires-ex-us-solicitor-general/" target="_blank" rel="noreferrer noopener">hired Donald B. Verrilli, Jr.</a> as a senior legal strategist to work alongside Grayscale’s in-house counsel and its attorneys at Davis Polk &amp; Wardwell. Verrilli was the 46th solicitor general of the United States, serving from 2011 to 2016, and also previously worked as deputy counsel to former President Barack Obama.



The company tweeted at the time that the addition was “to ensure that we have the strongest possible team of legal minds ready to support our BTC ETF application.” Grayscale executives <a href="https://cms.blockworks.co/grayscale-threatens-legal-action-if-sec-rejects-bitcoin-etf-conversion-bid/" target="_blank" rel="noreferrer noopener">have said</a> they wouldn’t rule out a lawsuit if the application is denied.



Roughly 11,400 comment letters surrounding the conversion have been submitted to the SEC since November. More than 99% of them have been in support of the application, according to Grayscale.&nbsp;



James McClave, a trader for Jane Street, wrote earlier this month that GBTC’s discount to NAV would likely dissipate if the trust was allowed to become an ETF, benefitting the investment product’s investors. Jane Street is a quantitative proprietary trading firm and liquidity provider that <a href="https://www.janestreet.com/what-we-do/etfs/" target="_blank" rel="noreferrer noopener">prices more than 5,000 ETFs globally</a> — and has a robust crypto trading business. 



“Based on our experience trading in both the spot and listed derivatives markets for bitcoin, we believe there is a relatively deep and liquid spot bitcoin market that is well situated to support the listing and trading of bitcoin ETPs in the US,” McClave wrote.&nbsp;



The SEC is slated to rule on a separate spot bitcoin ETF application from Bitwise Asset Management by week’s end. Chief Investment Officer Matt Hougan <a href="https://cms.blockworks.co/bitwise-cio-market-volatility-doesnt-help-spot-bitcoin-etf-applications/" target="_blank" rel="noreferrer noopener">told Blockworks last week</a> that recent events in the broader crypto markets, such as the collapse of Terra’s UST and LUNA, could impact the regulator’s decision on that and similar products.



Bitcoin traded around $21,000 Monday afternoon, down about 70% from all-time highs last November.    A number of industry watchers <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 a spot bitcoin ETF to launch</a> until 2023 — at the earliest.



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Grayscale ‘Encouraged’ by SEC Rulings Ahead of Bitcoin ETF Decision

<div id="highlights-block_6255d510ec5c1" class="highlights">
 <ul>
 <li>Sonnenshein told Blockworks it is “tough to say what the SEC is waiting for”</li>
 <li>The firm, meanwhile, plans to launch products targeting other corners of crypto</li>
 </ul>
 
</div>



Crypto asset manager Grayscale Investments is holding the line on considering suing the Securities and Exchange Commission if the agency turns down its long-running proposal to convert its bitcoin trust to an ETF.&nbsp;



CEO Michael Sonnenshein — doubling down on <a href="https://cms.blockworks.co/grayscale-threatens-legal-action-if-sec-rejects-bitcoin-etf-conversion-bid/">previous comments</a> — said Tuesday at the Exchange ETF conference in Miami that “all options would be on the table” in such a scenario.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="2048" height="1365" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg" alt="" class="wp-image-20052" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=386 386w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=392 392w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=329 329w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=50 50w" sizes="(max-width: 2048px) 100vw, 2048px" /><figcaption>Grayscale CEO Michael Sonnenshein speaking at the Exchange ETF conference in Miami | Source: Ben Strack for Blockworks</figcaption></figure>



“When they’re looking at two issues that are alike, they as a regulator need to look at the two issues through a like lens,” Sonnenshein said.



The firm filed to convert its Grayscale Bitcoin Trust (GBTC) to an ETF last year. The investment vehicle, which launched in 2013, has $25.6 billion in assets.



More than 800,000 US accounts invest in GBTC, Sonnenshein said, noting it’s held by individuals, retirement accounts, mutual funds and ETFs.



“When you think about the opportunity that [the SEC] has, it’s really to be the voice of further protecting investors and bringing an already existing product into a more stringent regulatory framework that will give investors more protection,” Sonnenshein said.&nbsp;



The SEC’s ruling on the conversion is expected in July. GBTC has consistently traded at a discount in recent months, and more than 3,000 letters <a href="https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190.htm" target="_blank" rel="noreferrer noopener">have been submitted</a> to the SEC advocating for the change. 



Though a handful of fund issuers have applied for bitcoin spot ETFs in recent years, the SEC has yet to approve any.



Sonnenshein tweeted last week that the SEC’s arguments against a spot bitcoin ETF were “significantly weakened” after it <a href="https://cms.blockworks.co/sec-approves-bitcoin-futures-etf-filed-under-the-33-act/" target="_blank" rel="noreferrer noopener">approved a bitcoin futures ETF by Teucrium</a> that was filed under the Securities Act of 1933 (‘33 Act) — the same law under which spot bitcoin ETFs have been filed. 



Though the SEC had already permitted several ETFs that invest in bitcoin futures — from issuers ProShares, Valkyrie and VanEck — those were filed under the Investment Company Act of 1940 (‘40 Act).



The CEO told Blockworks bitcoin futures ETFs were a “huge milestone” for the industry and that “the next natural step” would be to approve a spot bitcoin ETF under the ’33 Act.



“It’d be tough to say what the SEC is waiting for singularly, because as recently as the Teucrium approval, they actually spell out that the futures contracts themselves are tied to the underlying spot markets themselves,” Sonnenshein said in an interview Tuesday. “So, if their hang-up has been the underlying market, well now they’ve certainly changed their tune.”



Though the conversion of GBTC to an ETF is the number one priority for the firm, Sonnenshein said, the firm expects to launch more products targeting different subsets of the crypto space. He did not specify particular areas Grayscale may focus on.



The asset manager in February <a href="https://cms.blockworks.co/grayscale-launches-first-etf/" target="_blank" rel="noreferrer noopener">launched its first ETF</a>, which invests in companies working to build out the digital economy. Plus, it <a href="https://cms.blockworks.co/grayscales-latest-fund-focuses-on-smart-contract-platforms/" target="_blank" rel="noreferrer noopener">launched a fund last month</a> allowing investors to bet on Ethereum’s largest competitors in the smart contract space.



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Grayscale CEO: Spot Bitcoin ETF Approval Is ‘The Next Natural Step’ for SEC

<div id="highlights-block_624ef8aeb71b8" class="highlights">
 <ul>
 <li>All previously approved bitcoin futures ETFs had been filed under the Investment Company Act of 1940</li>
 <li>Teucrium hopes the approval will “provide insight into the regulatory evolution of the cryptocurrency ecosystem”</li>
 </ul>
 
</div>



The Securities and Exchange Commission has approved Teucrium’s bitcoin futures ETF, which Grayscale Investments’ CEO said weakens the agency’s argument to deny spot bitcoin ETFs.



Fund group <a href="http://teucrium.com/" target="_blank" rel="noreferrer noopener">Teucrium</a>, perhaps best known for its agricultural ETFs, <a href="https://www.sec.gov/Archives/edgar/data/0001471824/000165495421006095/TeucriumBCFU_S1.htm" target="_blank" rel="noreferrer noopener">first filed</a> for its Bitcoin Futures Fund last May. The ETF was filed under the Securities Act of 1933 (‘33 Act) — the regulation under which spot bitcoin ETFs are filed.



The SEC approved a proposed rule change to launch the product, according to <a href="https://www.sec.gov/rules/sro/nysearca/2022/34-94620.pdf" target="_blank" rel="noreferrer noopener">an April 6 filing</a>.&nbsp;



Though the SEC had already permitted several ETFs that invest in bitcoin futures contracts — from issuers ProShares, Valkyrie and VanEck — those were filed under the Investment Company Act of 1940, commonly called the ‘40 Act.



SEC Chair Gary Gensler said last August that the agency would look favorably upon ETFs investing in bitcoin futures contracts on the Chicago Mercantile Exchange (CME) that were filed under the ’40 Act, citing the law’s “significant investor protections.”



A Teucrium spokesperson declined to comment on when the product could launch, but noted that the firm was pleased, though not surprised, by the SEC’s decision.&nbsp;



“We know futures markets and are seasoned veterans of the nuanced regulatory world that is futures-based exchange-traded products,” the representative told Blockworks. “We are excited to once again be on the cutting edge of product innovation and are happy to have opened the door for bitcoin to enter the ’33 Act landscape.”



Grayscale CEO Michael Sonnenshein said in a Twitter post that as recently as last week the SEC cited differences between the ‘40 Act and ‘33 Act as the reason for denying a spot bitcoin ETF, referring to the agency’s latest decision on a proposed fund by Ark Invest and 21Shares.



Those arguments are now “significantly weakened,” he added.



<blockquote class="wp-block-quote">“If the SEC is comfortable with a bitcoin futures ETF, they must also be comfortable with a spot bitcoin ETF,” Sonnenshein wrote Wednesday. “And they can no longer justifiably cite the ’40 Act as being the differentiating factor.”</blockquote>



Grayscale is seeking to convert its Bitcoin Trust (GBTC) to an ETF — a process registered under the ’33 Act. The decision is expected in July, and the firm has said it <a href="https://cms.blockworks.co/grayscale-threatens-legal-action-if-sec-rejects-bitcoin-etf-conversion-bid/" target="_blank" rel="noreferrer noopener">would consider legal action</a> against the SEC if it continues to deny spot bitcoin ETFs.



Bloomberg Intelligence Analyst James Seyffart said in a tweet Wednesday that he believes the Teucrium approval strengthens the case for a spot bitcoin ETF and bolsters Grayscale’s potential lawsuit against the SEC if its GBTC conversion is denied.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">This approval strengthens the case for a spot bitcoin ETF IMO. If SEC denies <a href="https://twitter.com/Grayscale?ref_src=twsrc%5Etfw">@Grayscale</a>’ <a href="https://twitter.com/search?q=%24GBTC&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$GBTC</a> conversion in early July I think this approval also strengthens Grayscale’s APA lawsuit against the SEC… time will tell! <a href="https://t.co/dYO1i4nmBe">https://t.co/dYO1i4nmBe</a>&mdash; James Seyffart (@JSeyff) <a href="https://twitter.com/JSeyff/status/1511823046977495044?ref_src=twsrc%5Etfw">April 6, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Seyffart had <a href="https://cms.blockworks.co/sec-ruling-on-teucriums-bitcoin-futures-etf-could-impact-spot-funds/" target="_blank" rel="noreferrer noopener">previously flagged</a> the Teucrium application as potentially having consequences on bitcoin spot ETFs in registration. He wrote in a research note last month that he doesn’t expect the SEC to approve a spot bitcoin ETF <a href="https://cms.blockworks.co/is-a-change-to-exchange-definition-key-to-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">until the middle of 2023</a>.



Sumit Roy, crypto editor and analyst at ETF.com, told Blockworks earlier this week that he predicts a spot bitcoin ETF approval to remain “still a ways away” no matter how the agency ruled on the Teucrium proposal.



“We are pleased,” the Teucrium spokesperson said, “and trust that the result of this filing will provide insight into the regulatory evolution of the cryptocurrency ecosystem.”



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SEC Approves Bitcoin Futures ETF Filed Under the ’33 Act

Casey Wagner

<div id="highlights-block_6241e735ee041" class="highlights">
 <ul>
 <li>Grayscale CEO Michael Sonnenshein said that the issuer is not ruling out any options when it comes to converting GBTC</li>
 <li>The SEC has been denying bitcoin spot ETF applications for years, but Grayscale is confident approval will come eventually</li>
 </ul>
 
</div>



Grayscale is not ruling out seeking legal action against the Securities and Exchange Commission if the agency continues to prohibit the launch of a spot cryptocurrency ETF, CEO Michael Sonnenshein said.&nbsp;



“I think all options are on the table,” Sonnenshein said during an <a href="https://www.bloomberg.com/news/videos/2022-03-28/grayscale-may-explore-options-if-sec-rejects-etf-request-video?utm_medium=social&amp;utm_content=tv&amp;cmpid%3D=socialflow-twitter-tv&amp;utm_source=twitter&amp;utm_campaign=socialflow-organic" target="_blank" rel="noreferrer noopener">interview</a> with Bloomberg Monday when asked if Grayscale would consider an Administrative Procedure Act lawsuit if their application to convert the Grayscale Bitcoin Trust (GBTC) into an ETF is denied.&nbsp;



The world’s largest digital currency asset manager <a href="https://cms.blockworks.co/grayscale-filing-to-convert-gbtc-to-etf/" target="_blank" rel="noreferrer noopener">first filed</a> to convert its flagship trust, which is inferior to the currently prohibited spot bitcoin ETF structure, Sonnenshein said, in April 2021. Since then, the SEC has approved the first futures-backed bitcoin funds, but all applications for a spot product continue to be <a href="https://cms.blockworks.co/sec-rejects-vanecks-proposed-spot-bitcoin-etf/" target="_blank" rel="noreferrer noopener">delayed</a>. 



“The Grayscale team has been putting the full resources of our firm behind converting GBTC, our flagship fund, into an ETF,” Sonnenshein said. “It&#8217;s really important that investors know that we have and will continue to advocate for them.”&nbsp;



The SEC is currently seeking <a href="https://cms.blockworks.co/support-for-spot-bitcoin-etf-revs-up-as-agency-holds-course/" target="_blank" rel="noreferrer noopener">public comment</a> on whether to approve a bitcoin spot ETF. The regulator has given issuers, investors and other interested parties 240 days to submit input; the period closes in early July.&nbsp;



Grayscale has been encouraging investors to submit comments, even creating an education page and email form on its <a href="https://grayscale.com/comment/" target="_blank" rel="noreferrer noopener">website</a>.&nbsp;



“This is a really, really important part of the process,&#8221; Sonnenshein said.



<blockquote class="wp-block-quote">“GBTC today is owned by investors in all 50 states, and there&#8217;s actually now over 800,000 accounts in the US all waiting patiently to have it converted into an ETF.”&nbsp;</blockquote>



The SEC has cited concern about market manipulation as the main hurdle to approving a spot product.&nbsp;



“When reviewing bitcoin spot ETPs, the commission must apply all the standards of the Exchange Act, which it has followed in connection with its orders considering previous proposals to list bitcoin spot ETPs,” SEC Chair Gary Gensler wrote in a recent <a href="https://pbs.twimg.com/media/FLzxM5gUUAsyQOt.jpg" target="_blank" rel="noreferrer noopener">letter</a>.



<blockquote class="wp-block-quote">“In particular, the commission must consider if the bitcoin spot ETP proposal is designed to prevent fraudulent and manipulative acts and practices.”</blockquote>



Despite the lengthy regulatory process, Sonnenshein insisted that the team at Grayscale remains confident that the conversion to an ETF will happen eventually.&nbsp;



“Ultimately, we believe it&#8217;s a matter of when not a matter of if a spot Bitcoin ETF is approved,” he said.



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Grayscale Threatens Legal Action if SEC Rejects Bitcoin ETF Conversion Bid

<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.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



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Grayscale’s Latest Fund Focuses on Smart Contract Platforms

<div id="highlights-block_61d72c54a5e0d" class="highlights">
 <ul>
 <li>The metaverse is currently a challenging environment to invest in, according to ETF Trends Managing Editor Lara Crigger</li>
 <li>VanEck’s Gold and Bitcoin Strategy ETF is a unique product to keep an eye on, industry watchers say</li>
 </ul>
 
</div>



Several more metaverse ETFs will likely become available to US investors this year, industry professionals said, though the prospect of spot bitcoin and ether futures products remain less clear.&nbsp;



Fund managers <a href="https://www.sec.gov/Archives/edgar/data/0001364608/000144554621006106/etf2_485a.htm" target="_blank" rel="noreferrer noopener">First Trust</a> and <a href="https://cms.blockworks.co/proshares-files-for-metaverse-etf/" target="_blank" rel="noreferrer noopener">ProShares</a> filed for metaverse ETFs last month. The filings followed <a href="https://www.sec.gov/Archives/edgar/data/1650149/000089418921007293/subversivecombined485adocs.htm" target="_blank" rel="noreferrer noopener">Subversive Capital’s plans</a> — disclosed in October — to launch a metaverse ETF with the planned ticker PUNK.



There are already a few metaverse-focused ETFs trading in the US. Roundhill Investments’ Roundhill Ball Metaverse ETF (META), which launched in June, has roughly $950 million in assets, according to ETF.com. Exchange Traded Concepts launched the Fount Metaverse ETF (MTVR) in October, and that fund has about $14 million in assets.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;



Though more people seem to be realizing that digital assets and digital infrastructure is the way of the future, the metaverse is “a little thin on the ground when it comes to investability,” according to Lara Crigger, managing editor of <a href="https://www.etftrends.com/" target="_blank" rel="noreferrer noopener">ETF Trends</a>.



“I don’t really know that the industry has the bandwidth to support more than one of these funds, or maybe one or two,” she said during a Jan. 4 <a href="https://etfprime.com" target="_blank" rel="noreferrer noopener">ETF Prime podcast</a> hosted by The ETF Store President Nate Geraci.



<blockquote class="wp-block-quote">“Maybe in a few years the picture’s going to look different, but for now I think you’re going to see a lot of crossover in holdings among these funds and a lot of non-pure-play names in the portfolios.”</blockquote>



META’s top five holdings are NVIDIA, Meta Platforms (formerly known as Facebook), Roblox, Microsoft and Unity Software. Tech behemoths Apple and Amazon are also within the top 10 holdings.&nbsp;



Meanwhile, Apple is MTVR’s number one holding with a 14.7% weighting, according to ETF.com. Meta Platforms is second at 6.4%, followed by Alphabet, Pearl Abyss and Kakao Games.



<h3 class="wp-block-heading">Spot bitcoin versus ether futures</h3>



Crigger and Geraci said they don’t expect the US Securities and Exchange Commission (SEC) to approve a spot bitcoin ETF in 2022.



Though Bloomberg Intelligence Analyst James Seyffart agreed during the podcast that a spot bitcoin ETF in the US is unlikely this year, he noted that the SEC’s rulings on other types of ETFs could signal the fate of such products.



The SEC approved several bitcoin futures ETFs in 2021 that were filed under the Investment Company Act of 1940. These were exempt from the 19b-4 process, Seyffart noted, which puts the onus on the applicant to allay the concerns of the SEC&#8217;s Division of Trading and Markets.



But the agency will likely rule in April on futures-based bitcoin products from <a href="https://teucrium.com/" target="_blank" rel="noreferrer noopener">Teucrium</a> and <a href="https://cms.blockworks.co/?s=valkyrie" target="_blank" rel="noreferrer noopener">Valkyrie Investments</a>, which were filed under the Securities Act of 1933 — the regulation under which spot bitcoin ETFs are filed.&nbsp;



The SEC has <a href="https://cms.blockworks.co/sec-rejects-vanecks-proposed-spot-bitcoin-etf/" target="_blank" rel="noreferrer noopener">denied proposed spot bitcoin ETFs </a>in recent months, citing that bitcoin markets lack surveillance and may be subject to manipulation.



“What this does is it kind of opens the SEC to a form of attack,” Seyffart said of the upcoming rulings on the proposed products by Teucrium and Valkyrie. “They kind of have to make a decision here. They’ve been very iffy on their reasoning, and they haven’t defined what a market of significant size is.”



Grayscale Investments <a href="https://cms.blockworks.co/grayscale-files-to-convert-its-bitcoin-trust-into-an-etf/" target="_blank" rel="noreferrer noopener">filed to convert</a> the Grayscale Bitcoin Trust (GBTC) to an ETF. The firm subsequently <a href="https://cms.blockworks.co/grayscale-attorneys-argue-sec-for-spot-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">argued in a letter</a> that the approval of bitcoin futures-based ETFs, but not spot ETFs like GBTC, is “arbitrary and capricious.” Such rulings violate the Administrative Procedure Act (APA), the letter states, which requires federal agencies to treat “like situations alike.”



<blockquote class="wp-block-quote">“If Grayscale is denied in the beginning of July…to convert GBTC, I could see Grayscale filing an APA lawsuit to try to go there,” Seyffart said. “Maybe the SEC decides they don’t want to deal with that.”</blockquote>



Seyffart also reiterated <a href="https://cms.blockworks.co/when-could-an-ethereum-futures-etf-hit-the-us-market/" target="_blank" rel="noreferrer noopener">his stance</a> to Geraci during the podcast that he expects an ether futures-based ETF to gain approval before a spot bitcoin fund.&nbsp;



Derivatives marketplace CME Group launched ether futures in February, citing an increased institutional demand for transparent, exchange-listed crypto derivatives. CME Group introduced bitcoin futures in December 2017.



Geraci agreed with Seyffart, noting, “I just think for consistency, the SEC is going to have a bit of a more difficult time not approving that after approving the CME-traded bitcoin futures ETFs.”



<h3 class="wp-block-heading">Other crypto-related ETFs on the way in 2022</h3>



Grayscale <a href="https://cms.blockworks.co/grayscale-seeks-to-launch-its-first-equity-etf/" target="_blank" rel="noreferrer noopener">filed in November to launch</a> its first equity ETF. The proposed 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.



“I believe that the most exciting thing about the digital economy is how early it still is,” Grayscale CEO Michael Sonnenshein said in <a href="https://grayscale.com/2022-h1-ceo-investor-letter/" target="_blank" rel="noreferrer noopener">an investor letter</a> published on Thursday.&nbsp;



Another product likely to be approved in the coming months is the VanEck Gold and Bitcoin Strategy ETF. The firm revealed in a <a href="https://www.sec.gov/Archives/edgar/data/1137360/000113736021001182/vvtgoldandbitcoinstrategye.htm" target="_blank" rel="noreferrer noopener">Dec. 17 disclosure</a> that the planned actively managed offering would invest in gold and bitcoin futures contracts, gold-linked instruments, and exchange-traded products that provide exposure to gold or bitcoin.



“[People say] that bitcoin’s going to replace gold or bitcoin is the new gold or people hold bitcoin for the same reason that they hold gold, and I don’t think that’s true always,” Crigger said. “I think it’s interesting that they would pair those two together.”



Geraci added that VanEck could have difficulty marketing the product.&nbsp;



“Gold bugs and the bitcoin maxis tend to go at each other’s throats,” he said. “Who are you marketing to here?”



<hr class="wp-block-separator">
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<hr class="wp-block-separator">

What Crypto-related ETFs Could Hit the US Market in 2022?

<div id="highlights-block_619d3220a8632" class="highlights">
 <ul>
 <li>Morningstar Analyst Bobby Blue says Grayscale should allow investors to trade in their discounted shares for the amount of bitcoin in the trust that the shares represent while firm waits to convert its bitcoin trust to an ETF</li>
 <li>GBTC has returned 42% in 2021, as of Oct. 29, according to Morningstar data, which is less than half of bitcoin’s 95% return</li>
 </ul>
 
</div>



An ETF that directly invests in bitcoin is what investors want and deserve, Grayscale Investments CEO Michael Sonnenshein said.



The comments come after Morningstar Analyst Bobby Blue wrote in a November 22 <a href="https://www.morningstar.com/articles/1068472/the-problems-with-the-worlds-biggest-bitcoin-fund?utm_medium=referral&amp;utm_campaign=linkshare&amp;utm_source=link" target="_blank" rel="noreferrer noopener">research note</a> that Grayscale should institute a redemption program for its flagship bitcoin offering that has traded at a discount for a majority of the year.



<a href="https://grayscale.com/products/grayscale-bitcoin-trust/" target="_blank" rel="noreferrer noopener">The Grayscale Bitcoin Trust (GBTC)</a> launched in 2013 and had $37.2 billion assets under management on Tuesday. Similar to a closed-end fund, GBTC is a grantor trust that invests directly and exclusively in bitcoin.&nbsp;



The fund’s trust structure leads to persistent deviations between the price investors pay for shares and the actual value of those shares, Blue explained.



“There’s a lot more shares that investors want to sell than there is demand for it right now,” Blue told Blockworks. “There are other, cheaper, more efficient options available to investors and as those continue to proliferate, they’re going to look at this 2% expense ratio product and just say it’s just not doing it for me anymore.”



GBTC’s cost and limitations as a trust have led to substantial differences between the returns of the product and the returns of bitcoin itself. The offering has returned 42% in 2021, as of October 29, according to Morningstar data, which is less than half of bitcoin’s 95% return.



<h3 class="wp-block-heading">Bitcoin investors looking elsewhere</h3>



GBTC shares began trading at a discount to their net asset value in February, which was the month Canadian fund group Purpose Investments launched the world’s first bitcoin ETF on the Toronto Stock Exchange, Blue said.



The management fee of Purpose Investments’ product is half of that of GBTC, and the ETF gathered more than $1 billion in assets in its first month of trading.&nbsp;&nbsp;



In an ETF, market makers are able to create and redeem shares to keep the net asset value in line with the price, Blue explained. The only entity able to create and remove shares from the market is Grayscale, which it does through private placements and redemptions that are only available periodically to accredited investors.



While the US Securities and Exchange Commission (SEC) has not yet approved a spot bitcoin ETF in the US, it has recently allowed ETFs that invest in bitcoin futures contracts to come to market.&nbsp;



The ProShares Bitcoin Strategy (BITO) <a href="https://cms.blockworks.co/first-bitcoin-futures-etf-nears-1b-on-first-day-of-trading/" target="_blank" rel="noreferrer noopener">launched on October 19</a> and the Valkyrie Bitcoin Strategy ETF (BTF) <a href="https://cms.blockworks.co/valkyries-btf-trades-10m-in-first-5-minutes/" target="_blank" rel="noreferrer noopener">came to market</a> three days later. <a href="https://cms.blockworks.co/vanecks-bitcoin-futures-etf-set-to-launch-tuesday/" target="_blank" rel="noreferrer noopener">A similar offering</a> by fund manager VanEck and <a href="https://cms.blockworks.co/global-x-offers-different-type-of-bitcoin-futures-etf/" target="_blank" rel="noreferrer noopener">a product by Global X</a> that invests in bitcoin futures and the equity securities of blockchain companies became available to US investors earlier this month.&nbsp;&nbsp;



“Grayscale was able to harvest a lot of assets being the first mover and the only mover for a number of years, but that’s starting to break down,” Blue said.



<h3 class="wp-block-heading">What’s the fix?</h3>



A Grayscale spokesperson told Blockworks in an email that an ETF is the most efficient way to resolve any discrepancy between the firm’s products’ share price and the net asset value.



Sonnenshein responded to a Morningstar post on Tuesday that shared Blue’s research note, alluding to Grayscale voluntarily <a href="https://www.globenewswire.com/news-release/2021/09/10/2295185/0/en/Grayscale-Investments-Doubles-Its-Suite-of-SEC-Reporting-Investment-Products.html" target="_blank" rel="noreferrer noopener">making its products SEC reporting companies</a> and the firm’s <a href="https://cms.blockworks.co/grayscale-poaches-alerian-ceo-to-lead-crypto-etf-push/" target="_blank" rel="noreferrer noopener">hiring of David LaValle</a> as its global head of ETFs in August.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">✔️Launch 1st &amp; largest publicly-traded <a href="https://twitter.com/hashtag/Bitcoin?src=hash&amp;ref_src=twsrc%5Etfw">#Bitcoin</a> fund ✔️Voluntarily become SEC reporting ✔️Hire Global Head of ETFs ✔️Partner w/ <a href="https://twitter.com/BNYMellon?ref_src=twsrc%5Etfw">@BNYMellon</a> &amp; <a href="https://twitter.com/NYSE?ref_src=twsrc%5Etfw">@NYSE</a> ✔️Advocate for Bitcoin Spot ETF An ETF is what our investors want, and what we believe they deserve. <a href="https://twitter.com/search?q=%24GBTC&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$GBTC</a> <a href="https://t.co/Z7lr3E38Po">https://t.co/Z7lr3E38Po</a>&mdash; Sonnenshein (@Sonnenshein) <a href="https://twitter.com/Sonnenshein/status/1463187582070706185?ref_src=twsrc%5Etfw">November 23, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“An ETF is what our investors want, and what we believe they deserve,” Sonnenshein wrote.



Grayscale officially <a href="https://cms.blockworks.co/grayscale-files-to-convert-its-bitcoin-trust-into-an-etf/" target="_blank" rel="noreferrer noopener">filed to convert GBTC to an ETF</a> on October 19, the same day that BITO launched. Such a conversion would lift the current price discount and propel shares higher toward the net asset value, Blue said.&nbsp;



But it remains unclear when the SEC could approve an ETF that invests directly in bitcoin. <a href="https://cms.blockworks.co/sec-rejects-vanecks-proposed-spot-bitcoin-etf/" target="_blank" rel="noreferrer noopener">The agency denied</a> VanEck’s proposal for a spot bitcoin ETF on November 12, just before its 240-day review period of the planned product expired.



“In the meantime, investors’ best hope is for Grayscale to institute a redemption program,” Blue wrote in the note.



<blockquote class="wp-block-quote">“Its failure to do so to this point explains the trust’s current dilemma, though the firm may be reluctant to pull that lever until there’s more clarity around a spot ETF.”</blockquote>



Grayscale had previously offered a redemption program but closed it in 2016 after the SEC charged it with violating a regulation preventing the firm from repurchasing shares at the same time that it is offering shares through private placements, Blue noted. But Grayscale is currently not offering new shares.



The firm’s parent company, Digital Currency Group, last month authorized the purchase of up to a total of $1 billion worth of shares of GBTC, increasing its prior authorization of buying up to $750 million.&nbsp;



The timing, amount and value of share purchases will depend on levels of cash available, price and market conditions, the firm said in a statement at the time. The authorization may be expanded, modified or discontinued at any time.



“Repurchasing shares at the market price indeed creates demand for the shares, which typically helps narrow the spread,” Blue explained. “But the trust’s massive size is a hindrance, and thus far the repurchases haven’t made a visible dent.”



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Grayscale’s Michael Sonnenshein: A Bitcoin ETF Is What Investors Deserve

<div id="highlights-block_615f386901614" class="highlights">
 <ul>
 <li>There is almost no chance GBTC conversion will be allowed at same time futures-based bitcoin ETFs are approved, Bloomberg Intelligence analyst says</li>
 <li>Grayscale fees will come down upon product conversions to ETFs, but risk-reward potential outweighs current prices, executive says</li>
 </ul>
 
</div>



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.&nbsp;



The largest digital currency asset manager — with about $42 billion assets under management as of October 1 — has already revealed plans to convert its <a href="https://grayscale.com/products/grayscale-bitcoin-trust/">Grayscale Bitcoin Trust</a> (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.&nbsp;



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.&nbsp;



“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.&nbsp;



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.”



<h3 class="wp-block-heading">Sonnenshein urges SEC to ensure “even playing field”</h3>



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.&nbsp;



David LaValle, <a href="https://cms.blockworks.co/grayscale-poaches-alerian-ceo-to-lead-crypto-etf-push/">recently hired</a> to lead Grayscale’s ETF efforts, <a href="https://cms.blockworks.co/grayscale-urging-sec-to-approve-bitcoin-spot-futures-etfs-at-same-time/">told Blockworks last month</a> 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.&nbsp;



<blockquote class="wp-block-quote">“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.”</blockquote>



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.”&nbsp;



<h3 class="wp-block-heading">Grayscale fees would come down</h3>



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



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



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.&nbsp;&nbsp;&nbsp;



“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.”