Grayscale, the SEC & Genesis with Michael Sonnenshein

“A lot of regulators all around the world are looking to see how US regulators treat Bitcoin…I would say that anybody who is broadly involved in the crypto space, you want to see Grayscale win this lawsuit.”— Michael SonnensheinMichael 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. - - - - 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.- - - - This episode’s sponsors:Gemini - Buy Bitcoin instantlyLedn - Financial services for Bitcoin hodlersBitcasino - The Future of Gaming is hereLedger - State of the art Bitcoin hardware walletCasa - The leading provider of Bitcoin multisig key securityWasabi Wallet - Privacy by default-----WBD623 - Show Notes-----If you enjoy The What Bitcoin Did Podcast you can help support the show by doing the following:Become a Patron and get access to shows early or help contributeMake a tip:Bitcoin: 3FiC6w7eb3dkcaNHMAnj39ANTAkv8Ufi2SQR Codes: BitcoinIf you do send a tip then please email me so that I can say thank youSubscribe on iTunes | Spotify | Stitcher | SoundCloud | YouTube | Deezer | TuneIn | RSS FeedLeave a review on iTunesShare the show and episodes with your friends and familySubscribe to the newsletter on my websiteFollow me on Twitter Personal | Twitter Podcast | Instagram | Medium | YouTubeIf you are interested in sponsoring the show, you can read more about that here or please feel free to drop me an email to discuss options.