Michael Sonnenshein is managing director at Grayscale Investments, the world’s largest digital currency asset manager and the firm behind the $1.2 billion Grayscale Bitcoin Trust (GBTC), which is an open-ended trust fund. GBTC currently holds just over 1.2% of the outstanding bitcoin supply. ETF.com recently spoke to Sonnenshein to discuss Grayscale’s push to get investors to drop gold in favor of bitcoin.
ETF.com: Tell me about this #DropGold campaign you recently started.
Michael Sonnenshein: #DropGold is an idea that came to be sometime last year. We've long looked at the overlapping attributes between bitcoin and gold, and what we realized is that, while the two share many of the same attributes, bitcoin has quite a few features and characteristics that make it superior to gold. Hence, our thinking of bitcoin as a gold 2.0, a digital store of value in today’s digital age and digital world.
As we have been unpacking that concept, it’s something that’s resonated quite well with the investment community. We agree digital assets are a nascent asset class and they certainly don’t come without their risks, but there’s a growing narrative that bitcoin stands to disrupt part of the investable assets which sit in gold today.
Investors are thinking about and allocating toward bitcoin and out of historical stores of value like gold. The #DropGold campaign is able to succinctly synthesize that it’s time for investors to rethink their portfolio allocations and realize there are other assets which now need to be considered for inclusion, like bitcoin.
ETF.com: What are the shared attributes between bitcoin and gold, and what makes bitcoin superior to gold?
Sonnenshein: Where they often are compared is around things like verifiability, visibility and fungibility.
Where we really start to see bitcoin outshining gold is in areas like scarcity. We know, because of the bitcoin code, that there’ll only ever be 21 million bitcoins that will ever exist. They are verifiably scarce, whereas we continue to unearth gold in different deposits, different mines, all over the world.
Additionally, bitcoin can be sent anywhere, anytime, by anyone—so long as they have some kind of connectivity, whereas gold tends to be heavy and quite cumbersome to move and transport.
We also look at the verifiability of it. Bitcoin, because it’s tied to a blockchain, can always be traced, tracked and monitored. On the other hand, gold can be counterfeit, and there are varying degrees of purity. Thus, you start seeing how people may think that something like bitcoin has a better place in a portfolio in the age we live in.
ETF.com: How do you respond to gold proponents who argue gold has attributes that make it superior to bitcoin, such as its much longer track record spanning hundreds of years, or its lower levels of volatility? Some also knock bitcoin for the hacking incidences that have taken place on digital asset exchanges, resulting in losses for investors.
Sonnenshein: We are by no means denying that gold has had its place in the world for hundreds and hundreds of years. That being said, money and what constitutes a medium of exchange has changed frequently throughout history.
What constitutes money has been everything from rocks to salt to an animal hide. And for a long time, gold was used in that regard. But the U.S. went off the gold standard in the early ’70s, so it doesn’t actually constitute what it once did.
In terms of things like hacking, sure, a business—such as a digital currency exchange—could be susceptible to hacking, but there are also countless examples of banks being robbed, and safe deposits or vaults being raided, when there's cash or gold or other valuables there. On that footing, gold and bitcoin are pretty evenly matched.
With respect to volatility, what we’re finding is gold isn’t reacting in the same way it once did to macro shocks. Investors have historically flocked to areas like gold when there have been macro shocks due to inflation, interest rates or things of that nature.
But we've actually started to see compelling evidence that bitcoin is reacting to those in a positive way, as a digital safe haven. But of course, the two in terms of volatility and trading history are quite a bit different.
ETF.com: Your product, the Grayscale Bitcoin Trust (GBTC), looks like it’s been trading pretty consistently at a premium to its net asset value. Is that a concern for new investors who want to get exposure to bitcoin through the trust? Should they worry about the premium, which last stood around 36%?
Sonnenshein: GBTC can be purchased through private placements periodically to accredited investors, but the price in which GBTC is quoted each day in the OTC market is subject to market forces (read: Be Wary Of This Skyrocketing Fund).
The fact that it’s traded with such depth and so much liquidity is compelling evidence of how much demand there is for exposure to bitcoin through a security, much the same way a product like the SPDR Gold Trust (GLD) has provided investors with the ability to gain exposure to gold through a security.
These days, it’s among the top three or five most actively traded securities on the OTC market. Its pricing is always going to be dictated by the market, depending on how much demand there is for it.
ETF.com: What’s your take on the bitcoin ETF saga? Your firm had an application for a bitcoin ETF outstanding, but it was withdrawn. The SEC continues to reject any bitcoin ETFs from coming to market. Do you see that changing anytime soon?
Sonnenshein: The regulators have been very open-minded about the digital asset space, and have done a very good job of engaging with the communities. Grayscale, as the largest asset manager in the space, is often engaging with regulators and serving as a resource to them.
It’s a “time will tell” kind of a thing. But we applaud regulators for engaging with this community rather than shying away from it.