Grayscale, the SEC & Genesis with Michael Sonnenshein - WBD623
The Peter McCormack Show
Peter McCormack
4.7 • 2.8K Ratings
🗓️ 24 February 2023
⏱️ 83 minutes
🧾️ Download transcript
Summary
Michael Sonnenshein is the CEO of Grayscale. In this interview, we discuss Grayscale's lawsuit with the SEC, Genesis's lending practices and bankruptcy, GBTC and the intercompany relationships at DCG.
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The Grayscale Bitcoin Trust (GBTC) brought institutional investment into Bitcoin and helped Bitcoin to mature. Launched in 2013, as a subsidiary of the Digital Currency Group (DCG), it was devised as an official means of gaining exposure to Bitcoin for high-net-worth entities. Many, including Grayscale, have sought to provide a spot price ETF, but, in the absence of SEC approval, GBTC has served as an attractive alternative investment vehicle. In November 2021, GBTC had over $43 billion AUM.
GBTC is one of many funds Grayscale provides covering a plethora of digital assets, including Ethereum, Solana, Zcash and Bitcoin Cash. However, GBTC is the most dominant: at this moment GBTC represents nearly 75% of Grayscale's total AUM. With its 2% annual fee based on Bitcoin's spot price, GBTC is a valuable part of Grayscale and DCG's portfolio. At the current Bitcoin price, GBTC commands approximately $420m in fees.
Grayscale is currently dealing with some major issues. Since early 2021 GBTC has been trading below its net asset value (NAV). This discount is currently hovering around all-time lows at 46%. GBTC holders cannot redeem their shares for the underlying asset. They have to sell their shares in an open market and shoulder this discount. Those not forced to sell feel effectively trapped.
Grayscale is subject to a number of investor lawsuits, and an activist campaign seeking to unseat Grayscale as the manager of GBTC. Concurrently, Grayscale is suing the SEC over the latter's refusal to convert GBTC into an ETF. The mechanisms of an ETF allow for arbitrage trading keeping the share price aligned with NAV. This is Grayscale's strategy for reducing the current GBTC discount.
Grayscale has also been caught up in the bankruptcy of the crypto lending firm Genesis, another subsidiary of DCG. According to a Financial Times report, DCG is selling shares in Grayscale funds, "at a steep discount" to pay back Genesis creditors. There are more fundamental questions about the role of Genesis's lending. According to Bitcoinist, the failed hedge fund Three Arrows Capital took a $2.36 billion loan from Genesis backed by 17 million GBTC shares.
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Transcript
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| 0:00.0 | A lot of regulators all around the world are looking to see how US regulators treat |
| 0:06.8 | Bitcoin. I would say that anybody who is broadly involved in the crypto space |
| 0:12.0 | you want to see Grayscale win this lawsuit. |
| 0:14.8 | Hello there, how are you all? |
| 0:16.8 | We're having a good week. |
| 0:17.8 | It's been a very busy week for Danny and I since we've got back from New York and Canada. |
| 0:22.0 | We've been covering everything from the... since we've got back from New York and Canada. |
| 0:23.0 | We've been covering everything from the shows we made out there, |
| 0:25.7 | but also we're planning our next sprint, |
| 0:27.5 | which is a UK trip, which we'll have another live show. |
| 0:30.3 | Hopefully some of you can join us there. |
| 0:32.2 | Anyway, welcome to the What Bitcoin did show, which is brought to you by Gemini, the only place I'm using for buying Bitcoin. I'm your host Peter McCormack, and today I've got a very interesting show for you with Michael Sun and Shine. Now this was the last show we recorded on our |
| 0:45.7 | recent trip but I wanted to get this one out quickly as we covered some very important topics and |
| 0:50.8 | there's a lot I want to say about this. This is a very long intro so please |
| 0:54.4 | bear with me. I think the first thing I need to put out there is obviously you've just |
| 0:58.7 | heard me mention Gemini. They are a sponsor of the show and they are intrinsically |
| 1:02.4 | linked to everything that happened in this |
| 1:04.6 | and part of this conversation. |
| 1:06.6 | And like I said to Michael and Cameron and Tyler, I'm happy to have them on the show, I'm happy |
| 1:11.4 | to discuss this whole situation with them too. |
| 1:14.8 | And anyone really, look, if Barry wants to come on the show, I'll talk about it with him. |
| 1:18.4 | If Michael wants to come on the show for some reason, I'm willing to follow up the conversation |
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