Shades of Gray moves to expand ETF business as legal battle over spot bitcoin fund continues
by James · May 9, 2023
Grayscale Investments is moving ahead with its plan to transform itself into a major ETF player even as the firm’s potential flagship fund remains blocked by regulators. The crypto-focused asset manager announced on Tuesday that it has created Grayscale Funds Trust to manage some listed products, including ETFs, under its own roof as part of the rules of the 1940 Investment Companies Act. Grayscale also applied to create three new ETFs under the trust’s banner. “The creation of the Grayscale Funds Trust represents another important milestone and one of the really important foundational elements that the firm needs to continue to bring products to market,” Grayscale CEO Michael Sonnenshein told CNBC. The expansion comes as Grayscale is embroiled in a lawsuit with the Securities and Exchange Commission over the company’s attempt to convert its $17 billion Grayscale Bitcoin Trust (GBTC) into a spot bitcoin ETF. The SEC has repeatedly refused to approve spot bitcoin products, citing concerns about manipulation in the underlying crypto market. Grayscale has argued that the product should be allowed to launch in part because there are already bitcoin futures ETFs on the market. The lawsuit is key to Grayscale’s future because GBTC has been trading at a deep discount for months, putting pressure on the firm to allow redemptions. If the trust is converted to an ETF, the discount can be closed without significant withdrawals from the fund. The case was heard by the DC Circuit Court of Appeals in March and a decision is expected later this year. Sonnenshein said that while the transition to ETFs is part of the broader corporate plan for Grayscale, the lawsuit and the creation of the new ETF trust are “separate and distinct” matters. Grayscale plans to eventually convert all of its digital asset funds into US-listed ETFs, he added. One of the new ETFs that Grayscale filed on Tuesday could be seen as something of a replacement for a spot bitcoin fund. The Grayscale Global Bitcoin Composite ETF, which would have the ticker “BTC” at launch, would invest in spot bitcoin products outside the US, as well as the stocks of bitcoin mining companies. The other potential funds are the Grayscale Ethereum Futures ETF (ETHG) and the Grayscale Privacy ETF (PRVC). The first registrations do not yet show expenses for the fund. Registrations for new ETFs are usually not effective until at least 75 days after their initial filing, and some funds may never launch. Grayscale already has one ETF in the US market through US Bank’s series trust. Grayscale Future of Finance (GFOF) was launched last year and only has about $5 million in assets under management. Sonnenshein said Grayscale having its own trust will give it more autonomy than working with a third party. After a brutal crypto selloff in 2022, the price of bitcoin and other digital currencies has rebounded in 2023. Bitcoin traded near $27,500 on Tuesday, up more than 60% for the year, but still down about $40,000 from all hour high.
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