Why Grayscale is '100% committed' to converting GBTC to an ETF

A Grayscale bitcoin ETF is coming. The crypto asset manager said in a blog post today that it is "100% committed" to converting its bitcoin trust to an exchange-traded fund (ETF).

Grayscale first attempted to convert the Grayscale Bitcoin Trust (GBTC) to an ETF in 2016. After a year of discussions with the Securities and Exchange Commission (SEC), it withdrew its application in 2017, saying it felt the regulatory environment hadn't advanced to a place where a bitcoin ETF could gain approval. 

But the regulatory tide could be turning. In recent months, Canada has approved multiple bitcoin ETFs, and Brazil recently granted its own first approval. These developments have helped spur a number of new submissions to the SEC.

As of now, there are five submissions — from NYDIG, Valkyrie, WisdomTree, First Advisors/SkyBridge and VanEck — sitting with the agency. The VanEck proposal is the only application that has an exchange attached, putting the SEC on the clock for a decision.

Still, regulators are not yet ready, Grayscale CEO Michael Sonnenshein told The Block in an interview. And when they are, he thinks a future GBTC-turned-ETF product will have an advantage over the rest of the field. 

Betting on the track record

Sonnenshein teased the possibility of a second attempt to convert GBTC to an ETF on an episode of The Scoop in February of this year. Some wondered if Grayscale would attempt to bring an entirely separate product to market as an ETF.

But according to Grayscale, converting GBTC was always the plan.

"Each Grayscale product is at various stages of this lifecycle and our intention has always been to convert these products into an ETF when permissible," said the announcement.

Converting an existing traded security into an ETF is a novel approach to getting an ETF, Sonnenshein acknolwedged. But he argued that this is not necessarily working against it. GBTC's track record and existing approval as an SEC-registered reporting company could bolster the offering, he said. (The firm's Ethereum Trust is also a registered reporting company with the SEC.) 

GBTC has been the most popular crypto structured product since its introduction six years ago. "When we think about what it could look like as an ETF, it actually stacks up against some of the largest commodity-based ETF products out there," said Sonnenshein. 

With $39 billion in assets under management (AUM), Sonnenshein said that would make it the second-largest commodity-based ETF in AUM behind only the Spider Gold ETF (GLD). 

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Though GBTC still dominates its market, recently new entrants have taken small pieces of the pie.

Further, in the wake of the Canadian approvals, GBTC began trading at a discount for the first time in its six-year history. The market price of GBTC shares was lower than the product's net asset value (NAV). Some speculated that the introduction of alternative products had a hand in the decline of the premium. 

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Sonnenshein said Grayscale views new entrants and access points to the bitcoin ecosystem as good things for the industry.

What comes next

Grayscale's announcement today commits to moving forward in converting GBTC to an ETF, but there aren't any filings in motion yet, said Sonnenshein. "I think we really want to focus on getting it right and making sure that regulators are ready." 

Sonnenshein added that regulators have been "very clear that there are certain elements within the Bitcoin ecosystem that they're looking to get to a certain level of maturity before they'll be comfortable approving Bitcoin ETF."

For example, he mentioned regulators' ongoing calls for surveillance agreements between exchanges to deter market manipulation.

In the meantime, Grayscale appears to be trying to staff up in preparation for the moment US regulators are finally comfortable with a bitcoin ETF. Recently the firm posted a number of ETF-specific roles.