What Lies Ahead For GBTC & Grayscale

October 01, 2021

Dave LaValleDave LaValle is global head of ETFs for Grayscale Investments, the company behind the wildly popular Grayscale Bitcoin ETF (GBTC). Grayscale brought LaValle on in August to lead its ETF efforts. A veteran of the ETF space, he has more than two decades of experience in the financial services industry. Most recently, LaValle was CEO of Alerian and S-Network Global Indexes, a leading independent index provider.

ETF.com sat down with LaValle to discuss his new role at Grayscale and how he envisions the company’s product suite evolving. This interview has been edited for brevity and clarity.

 

ETF.com: There is growing hope that a futures-based bitcoin ETF will be approved in the not-too-distant future. Do you think that’s the first type of crypto ETF that will launch in the U.S.?

Dave LaValle: The most recent flurry of activity in conversation around a bitcoin futures ETF coming to market is really because of SEC Gensler’s commentary at the Aspen Summit, where he essentially says that he looks forward to his staff reviewing ’40 Act futures-based bitcoin ETFs filings.

He cited some of the protections the ’40 Act offers and also cited the oversight of the futures exchange—namely having the CFTC as a regulator of the exchange that houses and trades bitcoin futures. Those two protections, a federal regulatory framework on the exchange, and then the ’40 Act framework—having independent boards and things like that—gave him the comfort to review bitcoin futures-based ETFs.

I have a few comments on that. First, the ’33 Act structure, which is what GBTC would ultimately convert into, doesn’t preclude you from having some of the protections that the ’40 Act has—you could put those in there.

It’s also been well-documented that futures-based ETFs have additional complexity, additional cost and additional uncertainties. They’re just an inferior product compared to a spot product.

If, in fact, the SEC is comfortable reviewing bitcoin futures-based ’40 Act products, we feel it makes sense to also concurrently review ’33 Act physically backed products, allowing both [types of] products to come to market at the same time. Ultimately, having the chance for investors to make the choice how they want to see their bitcoin exposure in an ETF is ideal.

We don’t have plans for a bitcoin futures ETF. We do have plans for physically backed bitcoin ETFs, and that is the structure we’d convert GBTC into once permitted by the regulators.

ETF.com: What’s the process of getting something like GBTC turned into an ETF?

LaValle: When GBTC was initially created, it was built and structured with the ultimate goal of being an ETF with a similar structure to the SPDR Gold Trust (GLD)—the grantor trust structure.

Now the interim step, which is essentially where we’re living today, is that the product is open for creation; it just doesn’t have any redemption function. The process through which we would convert GBTC into a ’33 Act-structured ETF is actually fairly simple, and something that was envisioned from the start.

We’re committed to making it seamless for our clients. One of the main benefits is that the conversion would allow for the discount that currently exists in GBTC to collapse, and the product would trade very close to or at net asset value.

ETF.com: Stepping back a little, what’s the reasoning behind converting GBTC into an ETF? You could just leave it as it is. Is it mostly about doing the right thing for investors?

LaValle: That’s certainly a reason. But I think if you take a big step back, it’s the same story of many innovative ETFs coming to market. It’s the story of bringing an asset class or exposure that historically has been available to a narrow range of investors—such as institutional investors—and then bringing it into an ETF wrapper that’s equitably offered and available to all investors.

In 1993, a market cap weighting of the S&P 500 constituents was a very institutional strategy, but then it came to market in the form of the SPDR S&P 500 ETF Trust (SPY), and was available to all in the same fee structure, and in the same product wrapper.

It’s the same thing with gold. It was hard to invest in gold before. Big gold bars are not easy to store and keep safe. You have to have a vault, and they're difficult to move around. There are all sorts of operational complexities associated with using gold as an investment. GLD made that very easy, and took all of operational and infrastructure complexity out of the equation.

This is the same story; it’s just a new asset class. This is an opportunity to make the bitcoin product widely available in a battle-tested wrapper, which is the ETF.

ETF.com: Many people in the crypto space today advocate for custodying your own coins. It’s that whole “not your keys, not your coins” mantra. But of course, not everyone’s interested in doing that. Is that the main advantage of something like a bitcoin ETF—the convenience, and not having to worry about all that?

LaValle: It’s dependent upon the investor. Some investors are going to want to hold the bitcoin by having their own keys. It’s not necessarily an “either/or”; it’s an “and.” The more access points to the asset class that exist, the more liquid and resilient and robust the asset class will be.

As the asset class matures and the user base grows, offering the most access points for investment will likely result in a better experience for the ETF investor. That’s why we’re so excited to get these products approved.

ETF.com: Looking beyond bitcoin, how do you see this evolving? What's the strategy for Grayscale in terms of crypto ETFs?

LaValle: There’s a tremendous amount of focus on the bitcoin ETF, for obvious reasons. It’s been staring all of us in the ETF ecosystem in the face for the better part of the past eight years or more.

That’s certainly a goal for us, but it’s not the goal at Grayscale. I joined because I want to help build an asset manager for the next generation of investors. And digital assets housed in the battle-tested ETF wrapper are certainly a component of that. But it’s not the only component.

We’re unconstrained in terms of what types of products we’ll bring to market and the wrappers through which we’ll deliver them. To the extent that we can deliver them in the form of an ETF, we’re going to take advantage of that.

That could be some equity-based products. It could be some digital-asset-based products. But at the same time, I think what we’re going to do is ensure we’re building infrastructure that puts us in a position to be as nimble as we can possibly be, that allows us to react as quickly as we possibly can when we see demand from our investors suggesting the need for a particular exposure that’s in the marketplace.

I envision us [continuing] to bring single-asset products to market in the form of a private placement. I anticipate us bringing diversified products in the form of private placement. I envision us bringing ETFs to market through already permissible underlying assets and exposures.

I also envision us doing something we don’t know yet, because that’s the goal—to continue to push the envelope and to continue to innovate. We’ve innovated for a long time and we’ve been rewarded for that.

Email Sumit Roy at [email protected]f.com or follow him on Twitter @sumitroy2

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