Ben Strack

<div id="highlights-block_619d3220a8632" class="highlights">
 <ul>
 <li>Morningstar Analyst Bobby Blue says Grayscale should allow investors to trade in their discounted shares for the amount of bitcoin in the trust that the shares represent while firm waits to convert its bitcoin trust to an ETF</li>
 <li>GBTC has returned 42% in 2021, as of Oct. 29, according to Morningstar data, which is less than half of bitcoin’s 95% return</li>
 </ul>
 
</div>



An ETF that directly invests in bitcoin is what investors want and deserve, Grayscale Investments CEO Michael Sonnenshein said.



The comments come after Morningstar Analyst Bobby Blue wrote in a November 22 <a href="https://www.morningstar.com/articles/1068472/the-problems-with-the-worlds-biggest-bitcoin-fund?utm_medium=referral&amp;utm_campaign=linkshare&amp;utm_source=link" target="_blank" rel="noreferrer noopener">research note</a> that Grayscale should institute a redemption program for its flagship bitcoin offering that has traded at a discount for a majority of the year.



<a href="https://grayscale.com/products/grayscale-bitcoin-trust/" target="_blank" rel="noreferrer noopener">The Grayscale Bitcoin Trust (GBTC)</a> launched in 2013 and had $37.2 billion assets under management on Tuesday. Similar to a closed-end fund, GBTC is a grantor trust that invests directly and exclusively in bitcoin.&nbsp;



The fund’s trust structure leads to persistent deviations between the price investors pay for shares and the actual value of those shares, Blue explained.



“There’s a lot more shares that investors want to sell than there is demand for it right now,” Blue told Blockworks. “There are other, cheaper, more efficient options available to investors and as those continue to proliferate, they’re going to look at this 2% expense ratio product and just say it’s just not doing it for me anymore.”



GBTC’s cost and limitations as a trust have led to substantial differences between the returns of the product and the returns of bitcoin itself. The offering has returned 42% in 2021, as of October 29, according to Morningstar data, which is less than half of bitcoin’s 95% return.



<h3 class="wp-block-heading">Bitcoin investors looking elsewhere</h3>



GBTC shares began trading at a discount to their net asset value in February, which was the month Canadian fund group Purpose Investments launched the world’s first bitcoin ETF on the Toronto Stock Exchange, Blue said.



The management fee of Purpose Investments’ product is half of that of GBTC, and the ETF gathered more than $1 billion in assets in its first month of trading.&nbsp;&nbsp;



In an ETF, market makers are able to create and redeem shares to keep the net asset value in line with the price, Blue explained. The only entity able to create and remove shares from the market is Grayscale, which it does through private placements and redemptions that are only available periodically to accredited investors.



While the US Securities and Exchange Commission (SEC) has not yet approved a spot bitcoin ETF in the US, it has recently allowed ETFs that invest in bitcoin futures contracts to come to market.&nbsp;



The ProShares Bitcoin Strategy (BITO) <a href="https://cms.blockworks.co/first-bitcoin-futures-etf-nears-1b-on-first-day-of-trading/" target="_blank" rel="noreferrer noopener">launched on October 19</a> and the Valkyrie Bitcoin Strategy ETF (BTF) <a href="https://cms.blockworks.co/valkyries-btf-trades-10m-in-first-5-minutes/" target="_blank" rel="noreferrer noopener">came to market</a> three days later. <a href="https://cms.blockworks.co/vanecks-bitcoin-futures-etf-set-to-launch-tuesday/" target="_blank" rel="noreferrer noopener">A similar offering</a> by fund manager VanEck and <a href="https://cms.blockworks.co/global-x-offers-different-type-of-bitcoin-futures-etf/" target="_blank" rel="noreferrer noopener">a product by Global X</a> that invests in bitcoin futures and the equity securities of blockchain companies became available to US investors earlier this month.&nbsp;&nbsp;



“Grayscale was able to harvest a lot of assets being the first mover and the only mover for a number of years, but that’s starting to break down,” Blue said.



<h3 class="wp-block-heading">What’s the fix?</h3>



A Grayscale spokesperson told Blockworks in an email that an ETF is the most efficient way to resolve any discrepancy between the firm’s products’ share price and the net asset value.



Sonnenshein responded to a Morningstar post on Tuesday that shared Blue’s research note, alluding to Grayscale voluntarily <a href="https://www.globenewswire.com/news-release/2021/09/10/2295185/0/en/Grayscale-Investments-Doubles-Its-Suite-of-SEC-Reporting-Investment-Products.html" target="_blank" rel="noreferrer noopener">making its products SEC reporting companies</a> and the firm’s <a href="https://cms.blockworks.co/grayscale-poaches-alerian-ceo-to-lead-crypto-etf-push/" target="_blank" rel="noreferrer noopener">hiring of David LaValle</a> as its global head of ETFs in August.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">✔️Launch 1st &amp; largest publicly-traded <a href="https://twitter.com/hashtag/Bitcoin?src=hash&amp;ref_src=twsrc%5Etfw">#Bitcoin</a> fund ✔️Voluntarily become SEC reporting ✔️Hire Global Head of ETFs ✔️Partner w/ <a href="https://twitter.com/BNYMellon?ref_src=twsrc%5Etfw">@BNYMellon</a> &amp; <a href="https://twitter.com/NYSE?ref_src=twsrc%5Etfw">@NYSE</a> ✔️Advocate for Bitcoin Spot ETF An ETF is what our investors want, and what we believe they deserve. <a href="https://twitter.com/search?q=%24GBTC&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$GBTC</a> <a href="https://t.co/Z7lr3E38Po">https://t.co/Z7lr3E38Po</a>&mdash; Sonnenshein (@Sonnenshein) <a href="https://twitter.com/Sonnenshein/status/1463187582070706185?ref_src=twsrc%5Etfw">November 23, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“An ETF is what our investors want, and what we believe they deserve,” Sonnenshein wrote.



Grayscale officially <a href="https://cms.blockworks.co/grayscale-files-to-convert-its-bitcoin-trust-into-an-etf/" target="_blank" rel="noreferrer noopener">filed to convert GBTC to an ETF</a> on October 19, the same day that BITO launched. Such a conversion would lift the current price discount and propel shares higher toward the net asset value, Blue said.&nbsp;



But it remains unclear when the SEC could approve an ETF that invests directly in bitcoin. <a href="https://cms.blockworks.co/sec-rejects-vanecks-proposed-spot-bitcoin-etf/" target="_blank" rel="noreferrer noopener">The agency denied</a> VanEck’s proposal for a spot bitcoin ETF on November 12, just before its 240-day review period of the planned product expired.



“In the meantime, investors’ best hope is for Grayscale to institute a redemption program,” Blue wrote in the note.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Its failure to do so to this point explains the trust’s current dilemma, though the firm may be reluctant to pull that lever until there’s more clarity around a spot ETF.”</blockquote>



Grayscale had previously offered a redemption program but closed it in 2016 after the SEC charged it with violating a regulation preventing the firm from repurchasing shares at the same time that it is offering shares through private placements, Blue noted. But Grayscale is currently not offering new shares.



The firm’s parent company, Digital Currency Group, last month authorized the purchase of up to a total of $1 billion worth of shares of GBTC, increasing its prior authorization of buying up to $750 million.&nbsp;



The timing, amount and value of share purchases will depend on levels of cash available, price and market conditions, the firm said in a statement at the time. The authorization may be expanded, modified or discontinued at any time.



“Repurchasing shares at the market price indeed creates demand for the shares, which typically helps narrow the spread,” Blue explained. “But the trust’s massive size is a hindrance, and thus far the repurchases haven’t made a visible dent.”



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Bitcoin

Grayscale’s Michael Sonnenshein: A Bitcoin ETF Is What Investors Deserve

Casey Wagner

<div id="highlights-block_618e86fed7e2f" class="highlights">
 <ul>
 <li>Coinbase’s total net revenue dropped 39.3% in the third quarter</li>
 <li>Goldman Sachs maintains a positive outlook for the exchange despite the reported revenue decline</li>
 </ul>
 
</div>



Goldman Sachs maintains its buy rating for Coinbase despite the cryptocurrency exchange’s weaker-than-expected third quarter earnings report. Coinbase’s total net revenue dropped 39.3% from $2.033 billion to $1.234 billion during the third quarter, <a href="https://cms.blockworks.co/coinbase-reports-q3-net-revenue-dropped-39-to-1-234b/" target="_blank" rel="noreferrer noopener">according to Tuesday’s earnings report</a>.



“We think there’s an abundance of innovation in this space, and we want to double down on those opportunities,” <a href="https://cms.blockworks.co/coinbases-choi-we-will-be-rolling-out-a-regulatory-proposal/" target="_blank" rel="noreferrer noopener">Emilie Choi</a>, president and chief operating officer of Coinbase, said during the company’s earnings call Tuesday. Some of those opportunities reside within non-fungible tokens (NFTs) and Web3, Choi mentioned.



The company entered Q3 with “softer crypto market conditions, driven by low volatility and declining crypto asset prices,” Coinbase said. However, market conditions improved toward the end of Q3 and have continued into Q4, the report noted.



Goldman Sachs analysts point to Conbase’s new initiatives as a reason to be optimistic about the stock.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“While shares will likely give back some of their recent strength heading into the quarter, we see a number of reasons to be positive,” Goldman analysts wrote in a Coinbase report released Thursday. </blockquote>



Coinbase’s growing subscription services and the <a href="https://cms.blockworks.co/coinbase-plans-to-launch-nft-marketplace/" target="_blank" rel="noreferrer noopener">upcoming NFT platform</a> are going to advance the company in upcoming quarters, the report noted. 



&#8220;While COIN remains a difficult to predict financial model with broader adoption trends and the development of the crypto ecosystem driving shares on a day-to-day basis, we continue to believe COIN represents one of the best ways to get exposure to the expansion of the crypto ecosystem, and we remain constructive on COIN’s ability to continue to innovate and drive further adoption of crypto assets,” the report said.&nbsp;



Morningstar analysts <a href="https://www.morningstar.com/stocks/xnas/coin/analysis" target="_blank" rel="noreferrer noopener">took a similar view</a> Wednesday. 



“We are raising our fair value estimate for Coinbase to $225 from $201,” Morningstar analysts wrote in a mid-week Coinbase report. “Our fair value estimate benefited from a $20 adjustment for higher near-term transaction fee revenue as cryptocurrency markets set new highs, and a $15 increase from higher projected revenue from Coinbase’s staking and new NFT businesses.” 



COIN shares fell following the release of the earnings report Tuesday before paring losses. The stock was trading flat after the first hour, despite nearly 3% losses for top cryptocurrencies BTC and ETH, and sharper selloffs among smaller cap names.



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