Grayscale, a prominent player in the crypto asset management space, recently made headlines with its amended S-3 filing submitted to the U.S. Securities and Exchange Commission (SEC). Interestingly, the filing coincided with the announcement of Barry Silbert, CEO of Grayscale’s parent company Digital Currency Group (DCG), stepping down from Grayscale’s board of directors.
Grayscale edits its application as it announces a new CEO
The crypto market is abuzz with speculation regarding the implications of Silbert’s departure, particularly about Grayscale’s ongoing efforts to convert its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin Exchange-Traded Fund (ETF). This conversion is currently awaiting a decision from the SEC, and industry insiders are closely monitoring the situation. Ramah Luwalia, CEO of Lumida Wealth, offers the perspective that Silbert’s voluntary resignation could be a strategic move aimed at improving the chances of SEC approval for the ETF.
This speculation gains traction in light of the SEC’s existing investigation into Silbert and DCG. Additionally, Adam Cochran, a partner at crypto venture capital firm Cinneamhain Ventures, suggests that Silbert’s decision to step down might be part of an agreement between Grayscale and the SEC in anticipation of the conversion request. The formal announcement of Silbert’s departure was made through an 8-K filing to the SEC on December 26. The filing also revealed that Mark Shifke, DCG’s chief financial officer, would succeed Silbert as chairman of the board at Grayscale.
Implications and concerns of the financial shift
One noteworthy aspect of the amended S-3 filing is Grayscale’s shift to a cash-creation model. This strategic move has attracted attention, with senior Bloomberg ETF analyst Eric Balchunas characterizing it as Grayscale “finally surrendering” to this model. In the context of spot Bitcoin ETFs, the debate over cash versus in-kind creations has been ongoing. Typically, stock and commodity-based ETFs operate on an in-kind model, allowing market participants to directly handle the assets within the fund. However, a cash-creation model implies that new shares in a spot Bitcoin ETF can only be created or redeemed through cash transactions.
The SEC’s efforts to prevent broker-dealers from directly engaging with Bitcoin are perceived as measures to enhance tracking of Bitcoin movements from exchanges. This regulatory stance aims to mitigate potential risks associated with anti-money laundering and Know Your Customer compliance. Scott Johnsson, general partner at VB Capital, raises valid concerns about the SEC’s approach. While the SEC emphasizes investor protection, the cash creation model introduces uncertainties and potential risks for investors seeking exposure to Bitcoin through a spot ETF.
Johnsson notes that, unlike other spot commodity ETFs operating with in-kind models, the novel approach via cash introduces an element of unpredictability. The recent developments at Grayscale, including Silbert’s resignation and the adoption of a cash creation model, have sparked discussions within the crypto community. The anticipation of a potential spot Bitcoin ETF approval adds another layer of complexity, especially considering the SEC’s cautious approach and ongoing investigations. As the crypto landscape continues to evolve, market participants will closely monitor regulatory decisions that could significantly shape the future of digital asset investment vehicles.
