A federal appeals court ruled that SEC regulators should consider Grayscale's application to convert its bitcoin trust (GBTC) into a spot bitcoin ETF. Cryptocurrency prices surged following the decision that could pave the way for future exposures to crypto assets.
"The judges unanimously agreed with us — 3 to 0 — that the arguments we put forward in front of the court were such that the SEC acted arbitrarily and capriciously by approving the bitcoin futures products but not approving the bitcoin spot products like GBTC's conversion," Sonnenshein states. "The SEC did not have a good explanation as to how to make a distinction between these two product types given that they both derive their pricing from the same underlying bitcoin market."
Sonnenshein details the benefits this will bring to both retail and institutional investors alike.
"GBTC is just a couple weeks away from celebrating its tenth anniversary and that's ten years of operating within the digital asset ecosystem," Sonnenshein says. "And in contrast a lot of the other products seeking to come to market are merely just ideas, ideas on paper, they're just filings."
- Some big moves in the world of Bitcoin.
A federal appeals court says the SEC must review Grayscale's bid to convert its bitcoin trust into an ETF.
The decision effectively paves the way for the first spot bitcoin ETF and more widely for crypto assets to cement their status as part of mainstream finance.
Now shares in the trust rocketed on the ruling.
Take a look at that price action.
It manages the world's largest cryptocurrency fund and first applied for the conversion back in October of 2021.
There was a big reaction across all of Bitcoin and crypto related assets, including the likes of Coinbase, Riot Blockchain, and Hive.
BlackRock, Fidelity, and WisdomTree.
They are just some of the firms that have applied for their own ETFs over the last few months as well.
Well joining us now, we've got Michael Sonnenshein, who is the Grayscale CEO.
Great to have you here in studio with us.
MICHAEL SONNEHSHEIN: Great to be here.
- So we were taking a look at the reaction yesterday.
MICHAEL SONNEHSHEIN: Well yesterday, we actually did see a pretty big spike in trading volume in GBTC.
You know, this is the world's largest bitcoin investment vehicle.
It's been publicly traded since 2015.
It's been an SEC reporting company since 2020.
It's held by nearly a million investors here in the US directly within ETFs, within mutual funds.
So there are a lot of eyes and certainly a lot of hands looking very closely at the GBTC victory yesterday.
- And Michael, Rachelle here.
I mean, a lot of people were wondering, you know, questioning the logic.
You already have bitcoin future ETFs allowed.
So a lot of people were wondering why we weren't seeing these spot bitcoin ETFs.
What does this now open up, and what's been some of the reaction that you've been getting from investors?
MICHAEL SONNEHSHEIN: Well, you know, yesterday was really an overwhelming victory not just for Grayscale and our investors, but for the investment and crypto communities as a whole.
The panel of judges unanimously agreed with us three to zero that the arguments we put forward in front of the court were such that the SEC acted arbitrarily and capriciously by approving the bitcoin futures products, but not approving bitcoin spot products like GBTC's conversion.
And we really demonstrated-- or rather, the SEC didn't have a good explanation as how to make a distinction between these two product types given that they both derive their pricing from the same underlying Bitcoin market.
And so this is a really, really important milestone on GBTC's path to eventually converting to an ETF.
- And so walk us through the timeline from this point.
How soon could we see the actual spot ETF come forward?
MICHAEL SONNEHSHEIN: Well, so today is day one of a 45-day period during which the SEC can actually request a rehearing of the case.
- OK. MICHAEL SONNEHSHEIN: So we have to be a little bit patient.
We have to follow the Federal Rules of Appellate Procedure here.
And ultimately, the court will be issuing a final mandate that will detail the operational next steps.
In the interim, however, though, of course, our legal teams will be proactively working with the SEC to try and make for an expeditious as possible conversion of GBTC to an ETF.
- Now Michael, I do have to ask.
If the floodgates do open and this is finally approved, how will you differentiate your product from some of the other ones that have also been applying for spot bitcoin ETFs?
MICHAEL SONNEHSHEIN: You know, it's a great question, Rachelle.
And there's actually already quite a bit of differentiation.
GBTC is just a couple weeks away from celebrating its 10th anniversary.
And that's 10 years of, you know, operating within the digital asset ecosystem.
Custody, audits, accounting, disclosure, creations, investor, disclosures, tax treatment.
All of these things are really core to running GBTC every single day.
And in contrast, a lot of the other products seeking to come to market are merely just ideas.
They're just ideas on paper.
They're just filings.
So in a lot of ways, GBTC has paved the way for a lot of the other issuers to even think about bringing their products to market, making use of GBTC's operations, disclosures, financial reporting, et cetera.
And I think when investors do have a choice about which product to invest in, certainly thinking about a crypto native asset manager, a product that has billions of assets, hundreds of millions of dollars of daily trading volume.
You know, these are the types of distinctions that I think investors will be paying attention to.
But ultimately, we do believe investors should have choice.
- So is this ruling enough to really kind of overshadow some of the crypto winter detractors to cryptocurrency, whether that's SBF and FTX and what's taking place there, or whether that's the algorithmic stablecoin debacles of last year?
And the depegging, basically, to the dollar.
Is this enough for investors and for the sentiment that's moved forward and had to navigate so many of these issues?
MICHAEL SONNEHSHEIN: Certainly.
I think investors are paying attention to the fact that crypto has been one of the best performing assets year to date.
They're looking at not only the Grayscale victory, they're looking at the recent ripple victory in court.
They're looking at the pending legislation that's being worked on in Washington, both around stablecoins, as you mentioned, as well as looking more at market structure.
And it's encouraging from my seat having been in crypto now for almost a decade to actually see crypto becoming a nonpartisan issue.
To see both sides of the aisle working on legislation.
Their constituents are getting involved in crypto.
They're getting involved in the name of investor protection.
They realize investors are going to be involved in this asset class no matter what.
And so I am very encouraged that we will have some progress around a lot of these in the weeks and months to come.
- Who does this benefit the most?
Who stands to benefit?
Is it the retail investor that has been, you know, bullish on Bitcoin for the past 10 years, say?
As long as you've been involved.
Or is it the institutions now and making this more accessible and them being able to make sure that they've seen some type of revenue come through as a result of any products or assets that they might bring to market.
MICHAEL SONNEHSHEIN: You know, ultimately, I think an ETF is a wrapper that is tried and true.
And it's been used for everything from gold and other commodities to equities to, you know, sub themes.
I think there's no exception when it comes to Bitcoin, right?
Investors appreciate the ETF wrapper as a way to give them greater protections.
And this is a wrapper that's used both by retail investors as well as institutions.
So I think this is an overall win for the investment community as a whole if we move forward with seeing these spot bitcoin products like GBTC converting and coming into the market.
- And Michael, I do have to ask.
Because when you think of where Bitcoin and crypto started and now you have this influx of institutional investors and them waiting for the next catalyst, whether it be Bitcoin, halving.
What do you think is going to be the next catalyst in the crypto investment space?
MICHAEL SONNEHSHEIN: Well, I actually think, Rachelle, you nailed it.
One of the things that we and our investors are very focused on is the next Bitcoin halving that's slated to come around early next summer.
And as we think about both that as well as the regulatory and legislative landscape I just mentioned, I do think that it, you know, portends for an environment around crypto like we actually haven't seen before.
And some catalysts that could be really, really unique to continuing to the staying power of the asset class.
