On The Brink with Castle Island - Michael Sonnenshein on building a Crypto-Asset Management Franchise (EP.70)

Episode Date: April 22, 2020

Michael Sonnenshein, Managing Director at Grayscale Investments joins the show. In this episode we discuss: Grayscale's record quarter, raising $503.7 million in Q1 2020 The pace of institutional adoption of passively managed crypto asset products Thoughts on Libra, the halvening and other upcoming events in the cryptoasset industry Learn more about Grayscale at Grayscale.co and follow them on Twitter @GrayscaleInvest

This week's episode is brought to you by Zen Ledger, one of our portfolio companies, actually. Zen Ledger is the best software to get your crypto taxes done fast and easy. They have friendly customer service by phone, email, or chat, and it's the easiest place to get your crypto taxes done. If you use a CPA, you can invite them and they can be part of your process. You can also do tax loss harvesting or get a full audit report. And as a special offer for our listeners, you can use the coupon code Castle 15 to get 15% off. That's Zenledger. I.O. Go check it out. Today's episode is with Michael Sonnenstein, managing director of

Grayscale Investments. Grayscale is the asset management subsidiary of Digital Currency Group. They currently manage $2.4 billion in assets across 10 products, including the Bitcoin Investment Trust. This includes $503.7 million, which was raised in Q1. And Grayscale recently released their Q1 report, which we talked about in this episode. In this episode, we also discussed Grayscale's approach to building an asset management franchise, the types of investors that are beginning to deploy in crypto assets, and Michael's outlook for the industry going forward. This episode was a lot of fun, so without further ado, here's our episode with Michael Sonnichine. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated.

The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is a sleek. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of quantitative easing. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called the Bitcoin. Bitcoin. Michael, thanks so much for joining the podcast today. Thank you so much for having me on. It's great to be here.

Yeah, there's a lot to talk about. I wish we could have done this in person. How are you adjusting to working from home? I have to say it has been challenging, but I cannot tell you how well myself. And honestly, the entire grayscale team has adapted to working from home. We're a tight-knit team and folks that really thrive off physically having each other near one another. And so to see everyone step up and make the best of what's certainly been a difficult situation and Zoom and WhatsApp and email and all these other ways of staying in touch,

has been great and been keeping up on momentum and had a very busy first quarter. Yeah, you definitely had a busy first quarter and excited to talk about the digital asset investment report that you guys put out with record AUM. How has that been in terms of raising capital throughout this time period where you can't meet people in person? It's been really positive. Thinking back to 2019, we had a record year at Grayscale bringing in over $600 million into our family of products. And we've been noticing a couple of trends over the past couple of quarters, one being ever more institutional interest in digital currencies and in particular expressing that view through access products like grayscale offers.

And we've seen that tick up, you know, quarter after quarter. And also seeing a lot of those same investors really begin to think about not just having exposure to the space, usually which initially comes in the form of Bitcoin, but then also seeing that there were added diversification benefits of, of having exposure to more than one crypto. And so a lot of that momentum really did continue and probably ramped up into Q1, where we actually raised over half a billion dollars in Q1 itself. And even as things got rocky in the markets amidst COVID and the pandemic and this kind of massive de-leveraging and rush for liquidity, we saw pretty consistent inflows into our products

amidst all of that. And so does that manifest itself from a sales perspective in terms of actually being in front of these customers, you're doing a lot of Zoom calls right now? How has that changed? No, I think our investors are really great at getting on the phone or, yeah, sure, getting on Zoom. I think a lot of these investors, what we really learned from markets becoming a little bit rocky and then certainly seeing the VIX spike and oil come down to record lows is that they are really now more than ever using these drawbacks and drawdowns and price to tactically add to their positions. And so we're seeing not only existing investors use these periods to add strategically, but also it's actually opened the door for some new investors to come in who are using this

time period to start building positions. That makes sense. So I want to just take a step back and maybe set the stage a little bit in terms of what Grayscale does. I think a lot of people have heard about the Bitcoin Investment Trust might not be familiar with the broader corporate enterprise and know that you're under DCG's umbrella. So maybe could you just set the stage and tell us a little bit about the company and the product lineup? I would love to. So gray scale investments is a New York based digital currency only asset

management business. We manage about $2.5 billion across a family of 10 investment products. The firm's inception goes back to late 2013. We really started to recognize investors wanted exposure to digital currency, but would have difficulty figuring out where to purchase it, how to transfer it, store it, safe keep it. And to address those challenges, we began developing a family of products that mirrors the product structures that investors are used to seeing, particularly around of commodity-based products. And so since 2013, we've developed now 10 different products under the gray scale umbrella. Nine of those products give investors exposure to a single digital currency, so just long only

passively managed strategies. And that's for assets like Bitcoin, Ethereum, Ethereum Classic, XRP, light coin, et cetera. And then the 10th product we manage is a diversified basket that has, as its holdings, the assets which constitute the upper 70% of the digital currency market and holds them on a market cap-weighted basis. And having these 10 products has allowed us to serve really the entire gamut of investors because we both offer private placements for accredited investors to purchase these products from us. But then we also have some of our products so far trading on the public market where they have reach of really anybody anywhere that has access to the U.S. securities market. Thanks for that background. One of the interesting things to see is just

the amount of people that were working at second market over the years and also your trading affiliate Genesis. A lot of those folks were working on something totally outside of crypto and found themselves really wrapped up in the crypto scene eventually once Barry started to really focus on Bitcoin. So I'm curious from your perspective, what was your origin story in terms of how you came to be interested in crypto and what was the path that led you to your current role? I was working at a bulge bracket bank in late 2013, was in the middle of getting my MBA and wanted to find something where I'd have a lot more impact on my organization. Through LinkedIn, of all things, I found a role at Second Market, which as you mentioned was our founder and CEO's first company,

Barry Silbert, which was really focused on providing liquidity to private companies and helping them facilitate buyers and sellers, companies like Facebook, Twitter, things like that. And he had really pushed the firm in 2013 to get involved in digital currencies in Bitcoin specifically. So our trading desk had started trading Bitcoin in 2013, and we had also started the first investment product that's now under the gray scale umbrella, which is the Bitcoin Trust. And so in kind of looking for a new role at the time, wasn't particularly interested in Bitcoin, maybe saw it flash up on CNBC from time to time.

But other than that, was not necessarily looking to get into crypto. And when I got called in for an interview at Second Market, I had the very fast opportunity to not only just meet a couple members of the existing team that were working on the Bitcoin Trust, but then I got to meet Barry right away. And I'll never forget what he asked me, which was whether or not I wanted to join him to be a part of building something and helped me recognize how rare it is to be given the opportunity professionally to get in on the ground floor of something. And Barry said, you know what, Michael, you can go work at a hedge fund. You can go find other jobs that may pay better,

but you will very rarely, if ever, have the opportunity to join something like this at this stage. So why don't you take a chance, come help me build something. And if it ever feels like it's going off track, go for it. I'll give you a good recommendation and you can go on. and go on to your next opportunity. And about seven years later, haven't looked back once, stomached a lot of volatility in the crypto market and have now become managing director of the firm and oversee gray scales day-to-day operations.

Well, that's an awesome story, and you guys are definitely building something huge over there. We'd love to just talk a little bit about how these products work. I think a lot of people are probably familiar with the Bitcoin Investment Trust because it trades under a GBT. You can buy it in a brokerage account. but other folks might not be familiar with your other products. And not all these products are actually available on retail brokerage platforms.

So can you explain sort of how the product works from buying it at NAV and then the eventual transition to some of those shares being tradable? Can you just walk through how that works? So all 10 gray scale products can be purchased at their daily net asset value if you're an accredited investor. and investors can buy those shares directly from grayscale. None of the products have a redemption program. Rather, what we've done is we've been able to obtain public market liquidity for these products. So far that have public quotations are the Bitcoin product, which trades under GBTC, as you said, Matt. The Ethereum product, which trades under ETHE.

Ethereum Classic trades under ETCG and are diversified offering the Digital Large Cap Fund trades under GDLC. And so anybody who's accredited and purchases shares in those private placements has to wait a mandatory holding period before they can then sell them in the public market. In the case of the Bitcoin Fund, that's only six months that they have to wait between buying privately and then selling publicly. the other three products, Ethereum, Ethereum Classic, and the Large Cap Fund, you have to wait 12 months based on Rule 144 before you can sell in the public market. Now, if you're not an accredited investor, or even if you are, either way, anybody anywhere with access to the U.S. securities market can buy freely tradable shares of those products in any size. There's no minimums. There's no holding periods, et cetera, and those trade every day that the public markets are open. So yet another way

for us to access other investor audiences. Thanks for walking us through that. One of the things that I get asked a lot from people that are actually pretty sophisticated to investors is just why you can have kind of a product like GBT, but the ETF is not approved. And we see there's clear demand for these products in the retail channel just by virtue of looking at how they trade. So at any given moment, GBT is typically trading at a premium to the underlying, which

to me would indicate there's a big appetite for. exposure to crypto assets from the retail public and they're just not getting that exposure in a way that they want. And I know that you guys have applied for an ETF in the past. So would be curious your view on just why other kind of exchange traded products have not been approved by the SEC and what barriers you're monitoring that would lead to the growth in some of these assets. Well, I think, Matt, our regulators have done a really good job in terms of keeping pace with the industry, which is certainly from your day job. I certainly know from mine is moving at breakneck speed.

And it's been really fascinating to see them keep pace in the way that they have because the crypto market represents just such a tiny fraction of some of the other markets that they're responsible for surveilling and kind of creating regulation around. That being said, I think our regulators have made it quite clear that in order to see some exchange-traded products, they're really looking for a little bit more of maturation in the underlying assets themselves in terms of there being, you know, a domestic,

surveillable market, information sharing agreements, things like that. And I believe over time those things will come. An ETF will be a matter of when, not so much a matter of if. And I do think you hit right on the head, which is that some of the great scale products that have persistently and currently do trade out of premium, we have no control over the price at which those products are trading. We don't dictate those prices. Those are entire. dictated by the market. And so where they're trading on a given day is really a function of how much demand there is for digital currency exposure through an investment product, right? And we have investors being able to get exposure to crypto without them having to open up wallets or open up

accounts at exchanges or other service providers they may not be as familiar with, but rather they can get that exposure right alongside stocks, bonds, and other things that they're already invested in. And I think it's important for the industry to take notice of something that happened at Grayscale recently, which was that this past January, the Grayscale Bitcoin Trust became an SEC reporting company. So now that means that product has the same level of disclosure and reporting requirements that you'd see from any other public company or registered product that trades on a national securities exchange. And we file now 10Ks and 10 Qs for the product. And that's a really big step in terms of giving validation not only to the asset class, but also it should give everyone

in the investment community a really strong signal that there are, in fact, ways to work with regulators within the existing regulatory framework around this new, exciting, innovative asset class. And is that the reason why the GBT product is freely tradable after six months because it's a reporting entity? Correct. So one of the functions of becoming an SEC reporting company was that Grayskill Bitcoin Trust's statutory holding period for private placement shares dropped from 12 months to six months. So when people ask me sort of why would people want kind of a titled security that they're paying the 2% management fee on versus holding the underlying, I often talk about what you mentioned or on custody. So you don't have to worry about

holding the underlying asset. You can hold it in a brokerage account similar to all your other assets. But a big thing to me is also just you can hold it in a 10. tax-advantaged account. So you could hold these type of products in an IRA. So is that something that you're seeing across the suite of products that people are taking advantage of the fact that you can hold some of these things in a retirement account or an HSA, I guess, for that matter? Absolutely. And that's actually, Matt, one of the things we wanted to highlight for investors in our quarterly report that we just published earlier this week. Looking back to the firm's inception, about, I think it was 45% of the assets that we had raised from individual investors into our product

family were done through tax advantaged accounts, IRAs, 4-1Ks, things like that. It's virtually impossible for investors to gain exposure to digital currencies in those types of accounts because they're generally so limited to publicly traded securities, bonds, things of that nature, mutual funds. And so that's been definitely another big value proposition that our product family has brought to the investment community for sure. I want to talk a little bit more about that report. $503.7 million raised this quarter. So a staggering amount. It looks like a big chunk of it was raised from hedge funds. Can you talk a little bit about some of the drivers that you see for why some of these hedge funds are seeking this exposure? I think hedge funds are looking for

digital currency exposure for a variety of reasons. First and foremost, I think for a lot of these funds, it's difficult for them to be able to buy, hold, store, safe keep digital currency directly. And so the grayscale family of products works really nicely for them in terms of having a or family of instruments that allows them to put on the exposure without them having to directly touch or handle the digital currency. And then also comes a lot of. along with Acusip, audited financial statements, and really something that everybody from the PM to the chief legal officer can get comfortable with. It's interesting that as we unpack the hedge funds that we have been interacting with, that such an overwhelming majority of them are asset managers and hedge funds

like multistrat versus such a low percentage of them being crypto-focused hedge funds. And so the reason behind getting the exposure will differ quite a bit. There are certainly those who have been able to and are excited about the digital gold narrative and looking at digital currencies like Bitcoin as a store of value. There are others that are concerned about the proliferation of digital currencies and blockchain technology and how they will influence some of the existing investment and exposure that they have. But ultimately, I think as we see investors having to navigate an ever more challenging market, they're looking for ever more diversifying return streams. And they see that digital currencies may very well offer that in a way that other assets or other asset classes may not be able to.

One of the really clever and unique things about DCG is that all of the companies sort of interact nicely together. You have the venture unit. You have the trading desk. And then Genesis has also built out a lending function. And so in the prior reports, you'd kind of had this disclosure around paid in kind, which is basically borrowing crypto assets to put them into the trust. Can you speak a little bit about how you work together with the trading desk and the lending desk on the asset management side? Grayscale is a wholly owned subsidiary of digital currency group. Digital currency group or DCG is a holding corporation whose mission is to accelerate the development of a better financial system. And so we work very closely at the gray scale level with a

another one of DCGs wholly on subsidiaries, which is called Genesis. So Genesis is a registered broker dealer. They're likely the largest over-the-counter digital currency trading desk here in the U.S. They also have probably the most robust digital currency lending and borrowing practice. And so as investors come to Grayscale looking to deploy capital into our products, they're actually using not just Grayscale, but also Genesis. Because if someone gives us cash to subscribe to a product, Genesis is the one that is going out in sourcing the requisite amount of digital currency

to match that investor's investment amount and thus for us to be able to create the shares for them. In other instances, when investors aren't subscribing in cash, they're oftentimes borrowing digital currency from Genesis and using the borrowed coins to be able to invest into the products. And then we're also seeing in some instances investors who may already own digital currency and maybe don't want to any longer task themselves with being responsible for holding and safekeeping those assets, not to mention if they contribute those assets they already own into the gray scale family of products. The products and the exposure are now

inside of a titled security that's in the investor's name. And so perhaps they have concerns over the transferability of these investments over to their beneficiaries, which may be difficult if they're still owning digital currency outright, but a lot more straightforward and a lot clearer if they're holding it as a titled security and can be passed to their beneficiaries under estate laws. And so it's a really close working relationship between the Grayscale and Genesis team, and all, of course, under the DCG umbrella. That makes sense. One of the things I really get a kick out of is crypto Twitter. So when you guys put out these reports, you have people that'll say, all right, it's a huge AUM quarter for Grayscale.

this shows all the institutions are coming. And then you'll have other people kind of barking back and saying, well, a bunch of these are just like hedge funds that are doing a six to 12 month trade. So you can't really interpret it as true institutional excitement. And you like don't treat this as an investment thesis, treat it more as a trade. So I guess the first question is, does it matter? And then the second question is, what do you see as sort of the dominant thesis for getting exposure at an institutional level? Well, we are certainly not servicing. a subset of investors that are looking to make a quick buck in crypto. When you're investing in any one of the gray scale products,

you're going into it and having to know that the holding period is going to be six months in the case of our Bitcoin product, 12 months in the case of other products. And so these by definition are investors that have that medium to longer term time horizon. That being said, I think many investors really are excited by, again, kind of the long-term prospects of the asset class. And even if they do, in some cases, have the opportunity to monetize their investment after six or 12 months, there's many investors who don't. There's many investors who like to keep the exposure on for a longer period of time.

And I can think of a ton of investors, even going back to the earliest days of Grayscale, 2013, 2014, who still have their earliest and initial positions on in Bitcoin and probably will never sell them because they love the role that it plays in their portfolio and they want to just continue having the exposure for the long term. Are most of these kind of long term investors investing with a digital gold type of thesis or do you see other thesis around distributed compute and some of the other assets gaining steam within that institutional client set? I think the institutional client set, the easiest place for them to wrap their head around is probably around the digital gold narrative. But I think that's going to be something that

evolves over time. I mean, when I think back to the kinds of conversations we were having with institutions, call it 24, 36 months ago, we were still having to convince some of these institutions that they wouldn't be getting any blowback from their underlying LPs for having digital currency exposure. We were having to convince them that digital currencies were not intended for illicit activity, things of that nature. And nowadays, you'd be shocked to see how much internal resourcing has gone into staying on top of movements and changes in the asset class, the same way that a lot of these institutions have coverage for everything from energy to health care, whatever it may be, really spending the time to stick to understanding the trends and what's

happening in the space. And we're not having to do any of that 101, 201, 201, even 301 knowledge and awareness with these investors. It's really much, much more in-depth conversation. Interesting. So it's pretty clear to me that the crypto asset management category is just a massive opportunity. Gray Skills obviously built a market leading franchise here. I've been a bit surprised that we haven't seen more competition and more entry from existing asset managers. I mean, if you look around a lot of their traditional products are seeing margin compression, and you're also seeing the ability to actually do some of these products. The custody offerings are much more mature than they were a few years ago, spot markets evolving nicely. There's clearly appetite for this. All you need to

do is look at the premium that some of these products trade at to see that there's really clear market demand. And you guys are raising a lot of capital each quarter. So why do you think that we haven't seen sort of the traditional asset managers dip their toe into this industry? Well, I think it takes a unique skill set and knowledge set to be properly handling these assets. I think that it's only a matter of time before we see more. offerings come on to the market, and I would certainly say we'd be proponents of it. That may be surprising to you or to some listeners that we kind of invite so-called competition. But given the size of the asset class, there is so much room left at the table and so much food left on the table

that a firm, just like Grayscale, cannot be the only good shepherds doing our part to educate the investment community about the merits of having digital currency exposure, we need to see many more people acting in a similar capacity because there's so many untapped audiences of investors that really could benefit from learning more about the asset class and potentially putting some exposure on as well. Yeah, that education hurdle is really significant. And you guys must do a ton of that in terms of just being in front of large institutional kind of pools of capital and just explaining what this stuff is. So is that a big part of the job? It is. I'd say certainly as an asset manager, we're never going to be shy about raising assets. It's always a focus for us and something we always want to be doing. At the same time, I'd say our team probably spends, call it 60, 65 percent of its time on the road when we're not amidst a global pandemic. And we're doing lunches and dinners and presentations and roundtables and speaking at conferences. And while all of these audiences that we're getting in front of aren't necessarily going to be end investors,

for us, we feel that we carry a really important obligation to be putting the right messages out into the investment community and developing educational resources, most of which are posted on the Grayscale website. We have a whole insight section on our website that has everything from primers on individual currencies to portfolio allocation to thinking about upcoming events like the having, et cetera. So these are the kinds of things we like to try and develop. And try and be good shepherds of as well. One of the interesting things over the years that I've been in this industry is just kind of the starting point for some of that education.

So I remember back in 2014, 15, when I first started working full time on this type of stuff at Fidelity, there were a lot of meetings that I would have with people that were in traditional, quote unquote, traditional asset management, both at Fidelity and outside of Fidelity, where I'd almost start off the discussion talking about the benefits of blockchain technology and kind of introduce Bitcoin a little bit later in the discussion because you could usually get people engaged around blockchain but not crypto. And I think there's tons of people that are still like that. But lately, I've been having some of those same people reach out and just ask me about Bitcoin. And it's broadly in the context of all the quantitative easing that

we've seen all of the Fed interventions that we've seen over the past few weeks. So there's just this like massive awareness around Bitcoin as this option bet on the emergence of a digital store of value. Do you think that this is going to just spur more interest? And I'm curious if you're having the same type of engagements that I am lately. We actually are having a lot of engagement around Bitcoin, especially in the wake of quantitative easing. We have now seen so many investors really begin to drill into what is being pumped into the financial system as a result of COVID and really seeing the world come to a grinding halt and try and think about that in the context of other times when we've seen government bailouts or even just any kind of intervention

from a central bank or administer of a currency. And while it's certainly well-intentioned, it really cannot persist just in perpetuity. And I think it sets a very valuable stage for the role that decentralized currencies that are void of government, government intervention that do have a finite cap on their supply and are really not going to be subject to the policymaking decisions of that central authority really have in a world that we live in, not to mention with the world kind of coming to a grinding halt, everything has gone digital probably even faster than we thought it would. And that's not just payments and banking. I mean, it's everything from healthcare to how we're interacting human to human. And so I think this sets a really

valuable stage for investors to take a closer look at assets like Bitcoin. And a lot of our conversations too have been centered around just that. It's interesting because it comes at a really interesting time just for Bitcoin at a protocol level in, I think it's going to be less than a month. I think it's going to be May 12th or so. We're going to have the halving. And there's a ton of interest in what's going to happen to the price of Bitcoin once the supply characteristics change a little bit. So how do you see this playing out? Is this something that investors are aware of? Do you have a point of view on it. What do you expect to see heading into mid-May? We've written a couple of pieces about the Bitcoin halving. And for those listening that are a little bit more 101 around this asset,

the having event is a reduction of the Bitcoin supply rate. And so we have about 18 million and changed Bitcoin already in circulation. It'll take until about the year 2140 for all Bitcoin to come into circulation. And the reason that we're able to put that target out there for when all Bitcoin will be brought into circulation as a result of knowing how the supply rate will change in this very predictive manner over time. And so what Matt is referencing is in about three weeks, the Bitcoin halving means that the supply rate will drop in half, which is the third time this is happening. And so Matt, I think it's a question that I'd love to anybody to answer. We certainly don't know the answer as to whether or not investors can really appreciate the having or

understand it enough or what the implications for it may be. Historically, we've seen the halving events that occurred in 2012 and 2016 be positive price catalyst for the Bitcoin price in the months that followed them, but that's certainly not necessarily going to be indication of how the Bitcoin price may react after this having event. What I do think is interesting, though, is that the Bitcoin halving is occurring, right? We're seeing Bitcoin, the faucet slow down, so to speak, while fiat currencies like the U.S. dollar are basically being printed in an unlimited fashion. And so it's a really interesting juxtaposition between what's going on in the Fiat world for what's going on in the decentralized digital currency world. Yeah, I think someone called it

the quantitative hardening, which I think is a really good term that we should all start to do. Yeah, people ask me about the having all the time. And it's really hard to answer. I mean, I think there's a very naive way of looking at it, which is to say, look, the supply is becoming more scarce and so the price should go up. There's also probably a way to overthink it and that's probably the efficient markets kind of point of view that it's baked in. We know that there's a having four years from now too, so this should all be factored in. I think the reality is this is such a nascent market from an infrastructure standpoint that a big infrastructure change like a new retail broker like an e-trade adding the ability to buy spot

Bitcoin could have such a huge impact on the market and the price could really be influenced by something like that much more so than even the having or efficient custodial solutions. So there's just so many other things going on. And by the way, all this stuff is happening kind of at the same time where you have traditional folks entering, you have better custody, you have more institutional adoption. So it's hard to disaggregate all of the positive things that are happening. You make a really compelling point too, which is are people appreciating enough how different the ecosystem and infrastructure around crypto, around Bitcoin? is today as we lead up to this third having event, then perhaps it was in 2016, let alone in 2012, the previous having event. I totally agree with you. I think even seeing more on-ramps and offerings available than there were four years ago, that has a tremendous, tremendous

and could have very big implications for crypto and the ability for more and more people to get involved with the asset. Totally. I think, you know, it would be an interesting challenge to just kind of walk down the street and to tell someone that they had to buy $100 worth of Bitcoin and just see how long it would take them. Yeah, exactly. Most people, you're not going to pop open your Schwab account and buy Bitcoin, spot at least. You could, of course, buy GBTC. But a lot of people have that barrier and they're not going to go set up a Coinbase account, no matter how easy that actually is. And so it will become a lot easier. Actually, one of the things that would be curious to get your perspective on is Libra, because I think from that context,

Regardless of what this looks like when it launches, if it launches with the kind of original vision or the revised vision of just local stable coins, I think what we're going to see here is just a massive buildout of digital wallets. And I wouldn't be surprised if that's a major catalyst for more institutional participation and more retail participation in some of the public blockchain assets in addition to just Libra. So I generally view this as a really positive development. Curious what your thoughts are on Libra. I think I'm with you, Matt. I think when Libra was first announced, we were pretty outspoken on it being a positive development for the asset class and would still take that same view. One, because it has certainly brought center stage a lot of regulatory conversations.

Just the size, scope, and scale of the companies and individuals involved with the Libra project are causing regulators to really pay a lot of attention to it, which I think is great. And I think that's also caused a lot of other conversations around other digital currencies, Bitcoin and otherwise, to also have to come center stage. And so we would probably take the view that it's been a catalyst to have some of those conversations transpire sooner than maybe they were forecasted to. And in terms of investors and the community as a whole, getting a little bit more regulatory clarity.

So that's definitely been a positive development with you on whether or not Libra launches, what it looks like, what it doesn't look like. It's really too early to say. But there is certainly a growing appreciation for the idea that digital wallets, and it's going to be everything from being able to facilitate micropayments to get past paywalls as you're surfing the internet, to even people making more use of things like credit card points and airline miles. The ability for individuals and entities to think about

these other types of digital assets really as currency to use, I think is a really, really important catalyst. And given how large the network of users is globally that Libra can be connected into, should again be a very positive catalyst for people paying more attention to this space. We're excited about it and it'll be interesting to see how it all continues to shape up over time. Yeah, it's definitely going to be fascinating. And they'll be standing right there for the regulators to question. So they're sort of doing a service for a lot of folks in the industry, even though they're pretty controversial. One of the things that I think is probably going to happen here is that there will just be a new front door to financial

services for a lot of people if Facebook and Libra are able to push these products forward. And you could even, it's probably not going to happen right away, but you could see them moving up the value chain into managed products at some point. And that's actually something I want to get your view on is just the other types of asset management products that could be potentially on the horizon here with crypto assets. Could you see a world where we see more of the traditional mutual funds that just hold a sliver of Bitcoin? I know there are a couple products out there already, but could you see grayscale playing a role with other asset managers at some point where they just put a sliver of

gray scale products into their larger kind of mutual fund? Certainly. I mean, we're already seeing that and have been seeing that for quite some time. There are some actively managed ETFs and some mutual funds that own shares of some gray scale products. inside their offerings that allows them to get exposure to Bitcoin. And I think we'll only see more of that. Certainly for those types of folks, having a gray scale product, being that it's regulated, compliant, has a Q-SIP, is audited, et cetera, I think really checks all the boxes that they need. Not to mention, certainly in the case of the grayscale Bitcoin Trust, being that it's now an SEC reporting company really also opens the door to a much larger audience of investors that may have

otherwise not looked at an offering or be able to invest in in any kind of offering crypto or not that doesn't have the protections afforded by being an SEC reporting instrument. That's a really important and interesting point. I've heard that quite a bit since you guys changed that kind of designation or applied to have that designation change. There's just a larger surface area and total addressable market of assets that can even participate. it sounds like. Certainly. Well, that's great. Michael, kind of closing question is, what are you the most excited about heading into the next 12 months here for this industry? I'm really excited to see the industry continue to mature. One of the things that we're monitoring pretty closely as a result of COVID

is starting to see a little bit of M&A activity within the industry and also starting to see some shifting of some human capital around. And so I think we're going to see some consolidating. Some consolidation of certain businesses and really looking forward to seeing the continued build out of more infrastructure around the asset class. I know certainly in looking at my team and where we've been busy, as we've started the second quarter of the year, we've really been excited to kind of bring that Q1 momentum into Q2. And I'm really excited to share that the uncertainty and the volatility in the broader market has really so far not shaken investor confidence. If anything, again, people are using this time to continue to add to positions and spending even more

time on crypto than maybe they were before. So for us, we're heads down. We're continuing to build and grow. And I'm excited to see us continue to come out of this, hopefully even stronger than we went into it. Well, I think you guys are doing a real service to the community by putting out these quarterly reports and being as transparent as you are with the data and who's buying the product and how they're interacting with the platform in terms of, are they participating through a tax advantage, non-tax advantage. There's a lot of good data here. So where can people learn more about Grayscale and keep in touch? So certainly the Grayscale website, which is grayscale.co.com.com. And also follow us on Twitter, on LinkedIn. We're constantly pushing out new content and looking to engage with our

investors. And certainly feel free to drop your contact info on our website so that you're on our distro list and we'd love to stay in touch with folks. That's great. Well, Michael, I'm looking forward to hopefully getting together in person soon. We'll see how long that is, but I appreciate you taking time to do the pod. Appreciate you having me on. Stay safe, stay healthy. This has been fun. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island. Visit castle island.

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