Grayscale Building Crypto ETFs

David LaValle
Global Head of ETFs
Grayscale

The firm behind the first U.S. Bitcoin trust, Grayscale Bitcoin Trust (symbol: GBTC), is looking to transform its flagship product into an ETF once the SEC approves such vehicles. Here, Grayscale Global Head of ETFs David LaValle discusses what lies ahead.

We’re in a holding pattern when it comes to the launch of the first Bitcoin ETF. What do you think is behind the regulatory concerns?
Let’s take a more holistic look at the general evolution of the ETF market. In 1993, SPY launched with a very plain market-cap-weighted index. Then, we saw the ETF evolution move to international equities, commodities, fixed income and then subsectors of fixed income, more esoteric corners of the international equity markets, then emerging markets and frontier markets.

Each one of these evolutions has been novel in the eyes of the regulators. And the same questions that they’re asking about a Bitcoin ETF coming to market are the same questions that they’ve asked with each one of those evolutionary steps in the broader ETF market. The SEC’s primary goal is investor protection. As it pertains to the mechanics of the ETF, it seems their principal concern in allowing a novel product to be brought to market is ensuring that the ETF’s trading price in the secondary market will correlate closely to the constituents that underpin the value of that ETF. It’s about gaining comfort around the maturity of the underlying market, ensuring investor protection and that the ETF product will behave as designed.

If you look back at the first gold ETF, that took several years to get approved after the first filing. And gold is an asset that’s been around for thousands and thousands of years. Bitcoin was invented over 10 years ago, and only really experienced robust trading in the last five or six years on marketplaces that were recognized by institutional market participants. It’s understandable that it would take a while to approve the first Bitcoin ETF, given just how new it is.

Grayscale has said it’s fully committed to evolving GBTC into an ETF. Why not just launch a separate ETF?
Grayscale’s mission is to bring access and exposure to the digital currency asset class. ETFs have proven to be the most efficient vehicle to do that for a whole host of assets. Grayscale has a unique position in the market. Our flagship product provides exposure to Bitcoin and offers a robust liquidity profile. In addition, GBTC is an SEC reporting company, providing investors with the same level of transparency and reporting as they experience in most investment products and public companies. 

We believe that evolving GBTC into an ETF would also minimize or eliminate premiums and discounts, and allow the shares to trade more closely to their NAV. Further, GBTC shares trade on the OTC market, but with an ETF, they would be listed on the New York Stock Exchange, which is more easily accessible by a wider variety of investors.

How important are the years of experience with GBTC regarding product quality and in terms of differentiating from the competition?
Grayscale Investments was founded in 2013. We have been an innovator in the digital currency ecosystem for the past eight years. We believe this is why we’re the largest asset manager in the world managing cryptocurrencies. I recently joined Grayscale as the global head of ETFs because of the incredible opportunity we have to connect the strength of our position with the opportunity for mainstream investors to access such an important new asset class.

While bringing a Bitcoin ETF to market is certainly one of our goals, it’s not our only goal. We are focused on building and launching a broad range of ETFs to offer investors diverse exposure to cryptocurrencies and expand our investment platform.

One of our key differentiators is that Grayscale has been operating a Bitcoin investment vehicle since 2013. We bring a proven track record in pricing, custody, liquidity, support, audit and operational excellence. We have and will continue to partner with best-in-class service providers such as BNY Mellon.

All of this is a part of our mission to continue opening up access to digital currencies to satisfy investor demand, and because we truly believe in the staying power of this asset class.

This information should not be relied upon as research, investment advice or a recommendation regarding any products, strategies or any security in particular. This material is strictly for illustrative, educational or informational purposes and is subject to change. Carefully consider any Grayscale product’s investment objectives, risk factors, fees and expenses before investing. This and other information can be found at www.grayscale.com. Grayscale products are distributed by Genesis Global Trading, Inc. (Member FINRA/SIPC, MSRB Registered.)