Michael Sonnenshein, chief executive of Grayscale Investments, said the digital asset manager remains optimistic that the US Securities and Exchange Commission will approve spot ethereum exchange-traded funds.

Sonnenshein spoke at the Financial Times Crypto and Digital Assets Summit in London on 8 May.

He said: “We are just a couple of weeks away from seeing the SEC’s first thinking on spot ethereum products and we are optimistic that the SEC will do the right thing by investors.”

In April this year the firm filed with the SEC to convert its Grayscale Ethereum Trust, which is already an SEC reporting company, into a spot ETF.  Last year the asset manager won a lawsuit against the SEC which challenged the decision by the regulator to deny approval of the conversion of the Grayscale Bitcoin Trust into an ETF, despite the regulator approving bitcoin futures ETFs.

The ruling said that in order to avoid arbitrariness and caprice, administrative adjudication must be consistent and predictable and follow the basic principle that similar cases should be treated similarly. The court said: “The Commission failed to adequately explain why it approved the listing of two bitcoin futures ETPs but not Grayscale’s proposed bitcoin ET. In the absence of a coherent explanation, this unlike regulatory treatment of like products is unlawful.”

In a similar fashion, the SEC has approved ethereum futures ETFs. Grayscale had also filed for an ethereum futures ETF, but this has recently been withdrawn as these products are already in the market.

“At Grayscale we decided to focus our energy on our spot product which is core to our DNA of pioneering access to spot exposure for investors,” Sonnenshein added. “We can always revisit things in the future but that is where our energies are focused right now.”

Spot bitcoin ETFs

In January this year the SEC approved the listing and trading of 10 spot bitcoin ETFs and also approved the conversion of the Grayscale Bitcoin Trust into an ETF (GBTC).

Sonnenshein said: “When I zoom out and think about our 10 years of work, spot ETFs are by far the most mainstream moment that bitcoin has ever had. We have seen announcements from major banks and legacy financial players publicly advancing their plans in the crypto space.”

Grayscale’s spot bitcoin ETF had $28bn of assets when it came to market after converting from the trust, and Sonnenshein was challenged on the ETF’s net outflows of $17bn since January. Data provider Blockworks Research said in a report that the Grayscale ETF notched its first and second days of net inflows since its conversion on Friday 3 May ans Monday 6 May.

“We have always believed that a rising tide will lift all boats and see the addition of legacy financial players as helping to boost the ecosystem,” he said. “We never believed that we would have 100% market share in perpetuity, and we certainly cannot be the only firm educating investors on the merits of allocating to crypto.”

Sonnenshein also argued that the trust was the highest returning publicly traded product in history, returning over 49,000%, so the firm expected profit taking. He continued that the ETF was reaching an equilibrium and starting to see some net inflows into the product over the last couple of days, so this is just the beginning of the Grayscale journey.

💸 Latest data shows US Spot #Bitcoin ETFs with a total net inflow of $11.77B and a daily net outflow of $16M on 7 May. Blackrock’s IBIT saw zero net inflow and Grayscale’s GBTC resumed its net outflow of $29M after two days of net inflows. pic.twitter.com/EOYb1tJb7b

— Crypto.com Research & Insights (@cryptocom_rni) May 8, 2024

Outflows may also be related to Grayscale maintaining a 1.5% fee for its spot bitcoin ETF, while competitors have much lower fees of around 0.3%. Sonnenshein admitted that the fee war was faster and more furious than anticipated but said Grayscale has made a commitment to investors to lower fees, which the firm will evaluate over time.

He also argued that investors will buy the Grayscale ETF because the firm has been a specialist in digital assets since 2013, has leading research, a track record and liquidity, and that the fee is just one component when investors look at allocations. However, in March this year Grayscale filed with the SEC for a new spot bitcoin ETF, the Grayscale Bitcoin Mini Trust, which Sonnenshein said would come to market with an “industry leading low cost” fee, if approved.

The new ETF is in the form of a spot off in which shares of the Grayscale Bitcoin Mini Trust will be being distributed pro-rata to GBTC shareholders, so shareholders of both ETFs will end up with a lower blended average fee across the two products.

He expects the established large liquid GBTC ETF to be used as a capital markets allocation tool and trading vehicle. The mini trust has the same exposure but is more of a long term allocation tool, which Sonnenshein said is similar setup for many ETFs. In addition, he believes there will be a new base of investors in digital asset ETFs from the financial advisor and wealth management communities, once their platforms approve these products.

BREAKING‼️ $430 BILLION asset manager Susquehanna International just reported owning +$1.2 BILLION #Bitcoin across 10 ETFs.

This include +$1 BILLION in just Grayscale's Bitcoin ETF.

Wall Street is hungry for Bitcoin… 🚀 pic.twitter.com/uzpjOlDUZw

— Radar🚨 (@RadarHits) May 7, 2024

Crypto sectors

In October last year the asset manager launched GrayscaleCrypto Sectors, a framework designed to organize the crypto asset class. The firm also announced a partnership with FTSE Russell, the index business of London Stock Exchange Group, to introduce the FTSE Grayscale Crypto Sector Index Series, a suite of five rules-based indices capturing the investable crypto market across five sectors – currencies, smart contract platforms; financials, consumer & culture; and utilities & services.

Sonnenshein described the development of crypto sectors as “really important”, which the firm is bringing to regulators and other constituents of the ecosystem so that it continues to grow.

“There is a lot of confusion in how to understand the differentiation amongst the crypto asset class when you get beyond bitcoin and ether, so we have taken this sector-based approach which is tried and tested in traditional assets,” he said. “It has been a really effective tool for drawing more interest and excitement into the ecosystem.”

He said he is also excited about Grayscale Labs, which is  incubating new product ideas, new exposures and their most appropriate product wrappers.

“I think the Grayscale lawsuit and the fact that we remain one of the largest crypto asset managers has garnered the attention of other folks in our space as well as more traditional players, but there is no definitive or pending deal or anything of that nature,” he added.