The Wolf Of All Streets - Grayscale’s War With The SEC Could Bring Billions Into Crypto | Michael Sonnenshein, Grayscale's CEO

Episode Date: February 28, 2023

On March 7 Grayscale will contest the SEC’s decision to deny the conversion of its GBTC to an ETF. If Grayscale wins, it will mean we will finally have a Bitcoin spot ETF and it will also  potentially lead to a surge of investment into Bitcoin and cryptocurrency markets. I talked to Michael Sonnenshein, CEO Of Grayscale Investments, about GBTC, SEC, what the conversion will mean to crypto and GBTC investors, the Genesis bankruptcy and effect of FTX, and of course the crypto regulation.  Michael Sonnenshein: https://twitter.com/Sonnenshein Grayscale: https://grayscale.com/ ►► JOIN THE FREE WOLF DEN NEWSLETTER https://thewolfden.substack.com/  ►►NORD VPN  An essential crypto product to protect your privacy and keep your crypto safe!  Sign up on my link below & enjoy the benefits of NORD VPN from just $4 a month.  👉https://nordvpn.com/WolfOfAllStreets  GET UP TO A $8,000 BONUS IN USDT AND TRADE ALL SPOT PAIRS ON BITGET FOR ZERO FEES! ►► https://thewolfofallstreets.info/bitget   Follow Scott Melker: Twitter: https://twitter.com/scottmelker  Facebook: https://www.facebook.com/wolfofallstreets   Web: https://www.thewolfofallstreets.io  Spotify: https://spoti.fi/30N5FDe  Apple podcast: https://apple.co/3FASB2c  #Bitcoin #Crypto #trading  Timestamps: 0:00 Intro 0:47 How does GBTC operate 3:09 GBTC vs ETF 7:45 Why Futures ETF was approved while spot ETF was not 12:34 GBTC investors would benefit from ETF conversion 15:47 Regulation 22:40 Is contagion over? 25:00 Genesis bankruptcy 27:45 SEC case 28:33 Can crypto companies work with SEC? 30:50 Seeking non-regulated jurisdictions 33:20 Ideal path for the US to be a tech leader 36:20 Will ETF unlock a massive audience? 39:24 What excites Michael in crypto 43:27 Wrap up The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

The crypto space has long awaited the institutional wall of money that would come with pensions, endowments, sovereign wealth funds. But that's been largely impossible because they can't buy and hold spot Bitcoin and the instruments and products that exist right now are not really compliant. That would change with a Bitcoin ETF and Grayscale, led by Michael Sundenshine, is now suing the SEC on March 7 to convert GBTC to a spot ETF. It would change literally everything for the crypto space. I think that Grayscale and GBTC are a household name at this point. You guys have been around a long time. I think that people both inside and outside the crypto industry know about it. But

I think there's probably a lot of confusion as to how the trust actually operates and what's under the hood of GBTC. Could you kind of give us the primer? Yeah, I'd love to. It's great to sit down with you, great to chat. I'm looking forward to getting into a bunch of topics. So I think it really all dates back to 2013. The Grayscale team was very early to identify crypto was going to become an asset class when a lot of people thought we were crazy to think that it would become an asset class. And I think we were also early to identify that people want to have access to crypto. But where would they buy it? How would they transfer it? How would they store it? How would they safekeep it? And I think born out of those challenges is the Grayscale business and the Grayscale value proposition.

So what did we do? We launched as an American asset manager, making use of American, you know, US tried and true securities rules and regulations and said to ourselves, if we can bring crypto to people in a way that feels familiar, feels traditional, well, perhaps we can be that springboard to more people investing in crypto. Nick Neuman 0622 And so we started with what is our flagship offering, our largest offering, the Grayscale Bitcoin Trust. So Grayscale Bitcoin Trust is a long-only, possibly managed Bitcoin fund. It has grown to become the largest Bitcoin fund in the world.

It holds probably about close to three and a half percent of all the Bitcoin outstanding. And when you invest in Grayscale Bitcoin Trust, you buy shares of the trust. And what are those shares backed by and invested in? Just Bitcoin. And that's really a model that I think has been battle tested for all kinds of commodities. Scott, if you want gold exposure, you're going to go into a brokerage account and buy shares of GLD or for oil you buy USO. And so we really do grayscale Bitcoin Trust and its ticker symbol, GBTC, really as an access product for Bitcoin. And so today that fund has, call it $15, $16 billion in AUM. And it's really just one of 17 different digital asset products we have at Grayscale.

That's a lot of Bitcoin. So can you then explain, obviously, as a bridge to what's inevitably going to be our next conversation, which is the attempt to convert GBTC into an ETF? What is the inherent difference between the trust and an ETF? So what would that look like? How would that benefit customers and retail? What are the differences? Well, I think it's important to start with where GBTC started. So it started as a Delaware grantor trust. So that's the legal structure that surrounds GBTC. And we purposely chose a Delaware grantor trust because that's actually what we knew

we always wanted to be, an ETF. And so when we canvass assets and products like GLD and others, they are also Delaware Grand Fair Trust. So this product was always envisioned to become an ETF. And what we've seen and experienced since 2013 when we launched is varying attitudes around Bitcoin and crypto more generally from regulators and in particular, the SEC, which is obviously the regulator here in the US and responsible for administering our capital markets and ETFs and all securities for that matter. And GBTC today is not an ETF.

Instead what GBTC is, is it is bought and sold on the secondary market under the ticker GBTC by buyers and sellers on regular trading days, anyone who has access to the US securities market. And the shares that they're buying and selling actually represent the secondary market for shares that were originally purchased through GBTC's private placement. Now, because GBTC is not an ETF, the shares of GBTC can rise in value up above at a premium to the actual Bitcoin that the GBTC shares hold or invested in, or fall below that value to a discount to the value of the Bitcoin that gives it its value and that it holds. And so in that regard, I think there's a lot of folks who sometimes look at GBTC and say,

well, it kind of looks more like a closed-end fund, which historically does have premiums and discounts, but it's not a closed-end fund. It's an open-ended structure. And so we have been pursuing throughout GBTC's life and still to this very day, this very conversation, pursuing an ETF because if GBTC were to convert to an ETF, it would have that embedded arbitrage mechanism that would keep the shares of GBTC trading in line with the Bitcoin that it holds. And it wouldn't no longer have fluctuations of premiums and discounts and would instead track the Bitcoin price effectively over time. So obviously then, as you said, track spot price, would that also reduce fees and expenses for retail? And how would that then affect your business?

It's a great question. So one of the things I've said publicly and happy to say again today is we are going to lower the management fee on GBTC in an ETF format. We're certainly convinced that GBTC's conversion is inevitable. It's a matter of when, not a matter of if. And we also believe that GBTC's conversion to an ETF will also likely open the floodgates to other products entering the market. And certainly one of the ways that products may compete with one another is on fees. So tough to kind of start that kind of, quote unquote, fee war between theoretical products coming to market. But we certainly know that there will be fee compression, and we are, again, still committed to lowering the fees on GBTC as an ETF. So the assumption, obviously, is that if you do get approved or someone else does,

then there will probably be a flood of similar products being approved. We'll see multiple spot ETFs with time. I think so, right? I mean, we have countless examples of that today. There's thousands of ETFs here in the US. There's numerous ETFs that give exposure to the S&P 500, numerous ETFs that give exposure to gold. And even if you want to look at Bitcoin more specifically, we saw in 2021, the approval of the first Bitcoin futures ETF led to now the approval of I think we might have four, maybe five Bitcoin futures based ETFs. So there's different methodologies, different issuers, different fees, there's differentiation in these products. But yeah, I would certainly expect the same thing in the spot Bitcoin product space. Okay. Well, let's talk about why they have

approved Bitcoin futures ETFs and why we have not seen the approval of a spot ETF. And now I know we're sort of pandering in conjecture here because none of us are sitting in the meetings. But why do you think that they did approve that futures ETF, which you can even argue looking back was probably a negative for the market longer term without the spot ETF being available? Yeah. So I think we have to kind of look at kind of the history of how this has gone at the

SEC. So I think the earliest point in time when the SEC received a Bitcoin ETF application might have been as early as 2013 or 2014. And all the way through 2021, the SEC had rejected or, you know, asked issuers to pull back their filings for any application that came to them for a Bitcoin ETF, a Bitcoin futures-based ETF, you name it. So there was kind of a level playing field. What was interesting to us, and I guess the investment community as a whole, is that they changed their attitude somewhat in 2021 and approved the first Bitcoin futures-based ETF. And I think if you're listening or watching Scott and I today, it's important to

kind of take a look at that. A futures contract itself, right? And let's talk about a Bitcoin futures contract itself for a minute, is a derivative by definition, no disputing that, is a derivative of Bitcoin. And when you look at where a Bitcoin futures contract gets its pricing and gets its value, it's from where do you think the spot Bitcoin market because it's a derivative of that spot Bitcoin market. And so what's so interesting about this change in behavior in 2021, but the first Bitcoin futures ETF, is that it's signal to us and I think the investment community as a whole, that perhaps the SEC was starting to change their tune around Bitcoin linked products.

And from that point on, it kind of created this unlevel playing field where now we've seen several Bitcoin futures ETFs get approved, come to market. But not only has the SEC denied GBTC's conversion to an ETF, but also multiple other spot Bitcoin ETF applications that have subsequently been filed and denied by the SEC. And what's kind of curious about that stance is that the SEC's posturing around this has really been that they have concerns about the underlying Bitcoin market is really what they've said in all these denials. Is it that Bitcoin is susceptible to fraud or manipulation, or perhaps there isn't a significant enough Bitcoin spot market that's regulated and overseen? And the fact that that is their conjecture is really arbitrary, right? Because if that's their issue that they've stated many,

many times in many, many denials, well, then how did they get comfortable that it's all those same markets, all those same exchanges that give value to the Bitcoin futures contract and thus the Bitcoin futures contract ETF, right? And that's where we find ourselves today. And in the early days of the futures ETF, there weren't even enough contracts for the ETF. It was so popular initially for that first month or two that they were having to go by three months, six months, nine months dated, which obviously then puts a larger spread from spot price to the price of the ETF.

It's just really not an ideal product. I'm glad that we had it. I'm glad that there was the path to approval. For full transparency, I'm an investor in Valkyrie, right? So I was not unexcited when I saw the approval, but rationally, that's not really tracking the underlying asset. No. And listen, I want to make sure that as we have this conversation, I'm on record being clear that I'm not saying that I am against Bitcoin futures contracts or against the Bitcoin futures cohort of ETFs.

In fact, I think as someone now who's been in crypto for nine plus years, I've never been more encouraged that the Bitcoin market and the trading tools and the order management systems and the development of derivatives and borrowing and lending and the trading tools and the order management systems and the development of derivatives and borrowing and lending and the 24-hour market that's been created, it's never been more robust. And so I actually view each of these incremental additional tools that investors now have as additive to the overall Bitcoin ecosystem. So I'm certainly a proponent of it. But to your point, I think many investors would probably say that a Bitcoin futures ETF may be a little bit more of a trading tool, given its inability to track spot and low costs and other potential deficiencies of the product, as opposed

to owning a stock Bitcoin ETF or owning a product like GBTC, where you're actually more likely using it as an investment tool rather than a trading tool. For people who are like GBTC, where you're actually more likely using it as an investment tool rather than a trading tool. For people who are using GBTC as an investment tool, you talked about the fact that you can obviously have this major premium or this major discount. I don't remember how high it went, but obviously 30%, 40%, 50%. It could also trade at a 50% discount. I mean, to your credit, you're trying to convert that to an ETF and that's not something that you can control. Assuming you offered the product that you could, and that's the nature of the product, much like what we discussed with the futures ETF. But for investors, doesn't

that mean that having it as a spot ETF would be just exponentially better because they wouldn't have to worry about that discount? Or are they just going to be pushed towards finding ways to purchase spot Bitcoin because they don't have to worry about it at all? There's a lot to unpack in that question. So I think that there is no question that a spot Bitcoin ETF, the conversion of GBTC to a spot Bitcoin ETF is for sure the optimal product structure and the optimal outcome for current GBTC holders, as well as people in the future who are going to want to express a view on Bitcoin to a spot Bitcoin product. We're talking about a product structure as an ETF that again is battle tested. It's a wrapper that investors know. It's a wrapper that gives added protections,

added oversight, trading on a national securities exchange. There is only good that can come of bringing Bitcoin into that kind of wrapper, into that much further into the kind of regulatory perimeter and purview of regulators in that regard. If you are a GBTC holder today, what you would effectively expect is that at such time that GBTC does convert to an ETF, you would expect that embedded arbitrage mechanism to eliminate any discount or premium. So if you're holding GBTC,

you would actually be unlocking quite a bit of value. And I think the latest statistics are something like six to almost maybe even $7 billion that would actually go back into investors' pockets in an ETF format, right? And just to kind of tie a bow on that concept, if GBTC today is trading at, you know, 65 cents on the dollar because it has a 35% discount or whatever it may be, that would effectively be eliminated. So whatever that differential is from a value perspective would just be marked to market and go back into investors' pockets.

I think also, which one of the things I wanted to talk to you about, Scott, is regulation, what's going on in DC, but certainly one of the narratives that's resonated amongst politicians and regulators that we're talking to quite frequently is that certainly in the wake of recent happenings in the crypto ecosystem, there is no question that investors would not have, to the extent they did, sought out offshore exchanges where they had fewer protections available to them if there was in fact already a spot Bitcoin ETF and gave investors the ability to access this transformative asset in a way that was comfortable, familiar, and more than anything,

gave them the appropriate protections. Robert Leonard Yeah. There's been quite a bit of talk about how regulation in advance of all of the contagion would have been quite helpful because people would have been operating under the regulatory structure, but you guys do. But that leads to the unique challenge of actually I'm bullish on the concept of reasonable regulation, but not necessarily so bullish on the regulators who are doing it at the moment. That's a fair statement. I would say it's still early 2023. I'd say my team has been spending time in DC for the better part of, call it the last six years. We've already spent, I think, four full days on the Hill in 2020 to be alone. And here's what I'll tell you.

The age, not only are regulators very engaged on these issues and probably more educated and in tune with what's going on than they've ever been before. But importantly, from our legislators, I would say that, you know, there is a tremendous amount of interest in getting something done here, right? I think the idea that any of the offices that we meet with on the, you know, on the Senate side or on the House side could simply cover their eyes and plug their ears and think that crypto is going to go away. That notion is gone, right? People are not kind of taking that attitude.

Instead, I think the conversations are very well informed. I think a lot of them are looking back to those initial draft legislations that came through in 2022, which were a huge step forward, even though nothing got passed yet, that momentum is going to carry itself into 2023. And I do think we will see legislation passed this year. And I think the question that really remains is, well, what's the first priority? And I think we as an industry can help to answer that question and be a resource. That's why we're down in DC. So do we tackle stable coins first? Do we tackle regulating the intermediaries, right? Exchanges? Do we tackle the Howey test? And what is a crypto security? What is a crypto commodity, right? These are

the kinds of things that Hill offices are contending with to try and figure out where they want to put their resources. I spoke to Hester Purse just this week, SEC commissioner, and that was sort of her point was that we're regulating by enforcement, which she wants no part of, of course. That's largely because we've had no clear legislation and it's the only tool, sort of the idea that if the only tool in your box is a hammer, then everything looks like a nail, which is an analogy that I love. But you're obviously alluding to the Gillibrand-Lummis bill proposed last summer, which sort of laid out some, I think, very pragmatic

ideas for what crypto legislation could look like. But we haven't heard about that at all, at least from a public perspective. My gut to your point is that stable coins will be the lowest hanging fruit and that's where it will go first. Do you think that that is accurate or do you, I don't see them changing the Howey test anytime soon, although that would be a very nice... Yeah, I don't know. I really don't know. It does seem perhaps like, you know, stablecoins or are we going to develop, you know, CBDC here in the US or not or some of the challenges that may be taken on first. I will say there is an interesting and well-held appreciation for the fact that so much of the stablecoin ecosystem is already dollar-based,

whether you look at USDC or other assets. So I do think perhaps maybe more attention may end up getting paid there first before other areas. But I also think something else that's been really helpful and encouraging to hear is that, you know, be a grayscale who are, you know, at the moment litigating, you know, suing the SEC to get GBTC to convert to a spot ETF. Everyone appreciates the fact that what we're trying to do for our investors doesn't require new legislation, right? At all. You're registered. Right. We're literally just making use of existing securities rules and regulations and trying to further enhance and further protect investors and make use of existing wrappers. So

I'm encouraged and hopeful that as we continue to build more and more support for our lawsuit and the stands we've taken, that people understand here's something that we actually can do to help protect investors. And it doesn't take bipartisan support and reaching across the aisle and doing all the things that are going to need to be done to get legislation passed. Here's something we can do without any new legislation. And I think it's a big deal for GBTC. And I think it's a really big deal for Bitcoin as well. I think that's a really important differentiation because I think the general view is that we need mass legislation for anything to get done in crypto. But there are things that the laws already exist for. One of those, by the way,

is fraud, which going back to sort of the FTX and all of the contingent regulation maybe wouldn't have solved someone who's just an outright fraudster stealing people's money. And that's already a crime and doesn't need more regulation either. Correct. Yeah. I mean, I would say, on the heels of FTX, I've taken kind of a gigantic step back and looked at how resilient crypto as a community is. There is, I think, more fingers than I have that I can count the number of times there has been an industry stalwart or kind of center of gravity that at one point it was inconceivable to think that entity or that service or that offering would no longer be part of the crypto ecosystem, right? So whether that's FTX or Mt. Gox or the previous concentration of mining power we saw in China.

These are all things that have one time been really important, ultimately have been weeded out of the ecosystem. And honestly, as a whole, our industry has been better off for it. And I think time and again, we just kind of demonstrate that we continue to build, we continue to grow. And I think it's an important element of crypto as an industry and as a global community. Yeah, I think it said something that the price of Bitcoin obviously crashed with FTX's collapse, but then returned right back to the same price two months later. Yeah, exactly. Exactly. Because people love to talk about the idea that something as large as FTX, or obviously the

conjecture about Binance, it's never ending seemingly, but that it would be the end of the market and it never is. It never is. But that said, do you think that we've turned the corner on that contagion yet? I mean, listen, obviously, Genesis is under the same umbrella as DCG. They declared bankruptcy. Does that lead to any more problems? Is that in any way tied to what you guys are doing? Is there a problem there? Or is it completely separated? I mean, do you think we're basically over the hill now and easy sailing? Or do you think we're going to see some more shoes dropping? Yeah, I'd like to say that of the shoes that are going to drop,

I'm hopeful they've all dropped by now. Certainly, we're saddened as an organization and certainly me, again, having been in crypto as long as I have, I'm obviously very sad to see a lot of people who got tripped up in either FTX or who are waiting you know waiting to kind of see how genesis is you know bankruptcy turns out um but i'm cautiously optimistic um i i honestly think that the combination of what we're seeing again now in the equity markets um with you know volatility again kind of not sure where rates are headed but kind of starting to see how crypto is kind of holding in a pretty tight band from a price perspective, maybe are signs that things are decoupling from the equity market. And perhaps, you know, for most investors, they think that whatever pain is

going to be in the market has now been out there and digested. And it hasn't just been, you know, bankruptcies or insolvencies, we've seen a lot of pressure put on the miners and, you know, other parts of the ecosystem. So I'm hopeful, whether you know, I think we, you know, zip right back to all time highs or not, obviously remains to be seen. But I will say that it is interesting in these kind of environments where prices become a little bit more stagnant, you really start to kind of weed out those that are kind of long term players and folks that are really building and focusing on the crypto ecosystem from those that are just

kind of trying to turn a quick buck or really invested in crypto for the long term. I can't tell you how many times I've heard the Warren Buffett quote over the past few months that when the tide goes out, you can finally see who's swimming naked. But you have to continue to repeat it because it's so appropriate. Interestingly, I mean, even speaking of Genesis, that bankruptcy didn't rock the market at all. I mean, we talked about FTX obviously sort of crashing the market and coming back. But when the Genesis bankruptcy was announced, price didn't even move. So even I believe if we have more contagion coming, it seems like it's somewhat priced in or at least expected.

Yeah. And again, sorry, just to answer the question you asked me a minute ago, Scott. Grayscale, we have no operational reliance on Genesis. So our customers' assets are segregated and secure and encumbered. And the Genesis bankruptcy, even though we do share a parent company, digital currency group, we are not directly and our customers are not directly affected by Genesis. Right. I think that's an important clarification for people. That said, for those who don't understand that, have you seen any negative pushback? Or do you think that the contagion in general, not even necessarily specific to Genesis, but has that bankruptcy or the FTX collapse or any of these things, do you think made your case harder?

Do you think that now the regulator is so empowered or feels so compelled to bring down the hammer that we talked about before that that even makes it less likely that you'll be able to get done what you want to in a timely manner? You know, it's such a good question. And I'm glad you're asking it because what's so great about our legal system here in the US is that the judges who are going to preside over our case, right, so we're, you know, directly suing the SEC. We're challenging the denial that they made of GBTC's conversion to an ETF. We are in the appellate court in the District of Columbia Circuit. Those judges need to evaluate and rule on this case solely based on the facts and the

circumstances that our attorneys give them and the facts and circumstances that the SEC's attorneys give them. And so their outcome and the way that they preside on this case should not be impacted at all, influenced at all by FTX or anything else that has transpired in the crypto system and solely, you know, judging this case based on what they're given. And we continue to feel as we head into the oral arguments of the case, which are scheduled for March 7, that we really have straightforward, common sense, compelling arguments that the SEC has created an unlevel playing field here, and they acted arbitrary, and they should not have allowed a Bitcoin futures ETF or multiple Bitcoin futures ETF,

for that matter, enter the market without also approving spot Bitcoin ETFs like GBTC at the same time. So if you win, does that mean that you instantly are able to convert or are there further steps beyond that? Well, I think what will be the most likely outcome is that winning the case will mean that the SEC can no longer deny GBTC based on the facts and circumstances that they historically have. And so, like always, we do have a productive dialogue with the SEC, despite the fact that we are suing them. And so we would work to ensure that any other applications or other kinds of filings we might need to make would be amenable

to them and pursue the conversion as quickly as possible on the other side of winning the case. There's been a lot of chatter from the SEC. Gensler specifically has made videos saying the industry should just come in, talk to us, work with us, register. I mean, you're one of the few that's actually attempted to try that. But do you think that that is misdirection? You know, sort of Jesse Powell, obviously, at Kraken laughed it off and sent a tweet, oh, ha, ha, ha, I should have just pushed a button and registered to become a security and that's not really possible. Do you think that there

actually is a path right now for crypto companies to come in and work with the SEC? Or do you think that right now it's just sort of a stalemate? You know, Scott, I sure hope there is because that's what our tax dollars as, you know, taxing Americans are supposed to be going towards when our dollars go to fund the SEC's, you know, operations. I'll say that, you know, where I'm able to opine is really when it comes to grayscale. We have had a, again, a very productive dialogue with the SEC. I mean, for years, we go down to the commission, you know, standing room only, tons of people coming in asking thoughtful questions. We're not always there with, you know, just asks, but also there to help educate and advocate for, you know, for our investors. And, you know, I think the idea that is being continued to be pushed to come out,

come in, come talk to us, come register. What's ironic about that is Grayscale did come in and register. And we came in and registered well in advance of the SEC putting out this broad call to come in and register, right? So GBTC, the Grayscale Bitcoin Trust, voluntarily came in and became an SEC reporting company in January of 2020, right? So we've been filing since that time, 10 Ts and 10 Qs and 8 Ks and subjecting ourselves to, you know, further disclosure and further, you know, regulatory reporting and really trying to do the best things possible for investors and to really advance the ball on the way that the SEC is thinking about crypto. So there is some irony there that we actually did come in and register

and despite that, still can't yet have what we know our investors want and have obviously been very patiently waiting for, which is an ETF. Robert Leonardus Right. And obviously, it's a challenging process for anyone to go and do all of that. And we've talked about it before, but that leaves most people, I think, seeking non-regulated places to do their trading and investing. And you don't get that level of transparency from most centralized exchanges, perhaps Coinbase, Gemini, because they're regulated, that is the case. But even Coinbase now saying

that they want to become a federally regulated exchange, which I think for a lot of people is probably a head scratcher who think they're somewhat federally regulated already. And that's one of the other narratives that I think has been really kind of discouraging as we've been spending time in Washington that people are taking note of with no guidance and no new sets of rules or regulations that account for the attributes that crypto assets have. lot of these businesses are have or are thinking about taking their operations outside the United States. And when you start talking to folks on the Hill, the idea of American competitiveness, the idea of Web3, you know, becoming, you know, something that, you know, is is centered around

the UK or centered around Canada or centered around, you know, Germany or centered around Canada or centered around Germany or centered around parts of Southeast Asia, like Singapore or in Hong Kong, other places that have had much faster, more formal guidance is a really kind of bad spot to be in, right? This isn't something that the US should lose out on. This is the hub of capital and innovation. And I think it's really important that we are engaging in VC, that that point is continued to be emphasized, because if you don't do something about it, if you are running a

business and it at all revolves around or touches crypto, it's very hard to continue to grow your products, grow your offerings solely by trying to not repeat the mistakes of the enforcement actions that are being put on people who are foot faulting. You can't just continue to operate a business and say, well, this company stepped on that landmine, so I'm going to make sure that I don't do that. That's not really a way to grow or to innovate. And I think that's a challenge that we have and one that we need to continue to advocate for. It also doesn't protect the consumers who are hurt, which is the regulator's mandate. It's to go after, once everybody's already lost their money to then go and force action instead

of doing anything in advance, has seemingly been the playbook, whether that's just because it's the only tools they have or not. I can't speak to you, but it's been hard to watch. There's no question about it. I would say probably harder for you to watch probably than most, to be quite honest. So then the question is, what would be the ideal path? I know we won't get it, but what would be the ideal path for that innovation to remain on shore for the United States to be a leader? Is it legislation? Is it a new test that's not the Howey test that speaks to the actual technology and the fact that a test from 90 years old probably doesn't apply to a new technology? Is it a regulator just for this asset class? We have the CFTC for commodities,

the SEC for securities, and we have some sort of crypto regulator. What would be the ideal path if we got our choice? I'm not going to pretend, Scott, that I have the silver bullet for what it would be. But we need to just get started as a general matter, right. Some of the things you just listed out, not crazy at all. Maybe we should have a totally new federal agency that oversees crypto because it is so nuanced and because it is so distinct from commodities or securities and thus it shouldn't fall under the CFTC or the SEC. Maybe that's how this gets tackled. We also certainly do need legislation. To have an exchange come in and register

is something I think many of them would be happy to do, but not without knowing where the line is drawn and drawn in a pragmatic and reasonable way, thinking about all the assets that they have available for trading on their exchange, which of those are securities and which of those are non-securities, right? And so some clarity around that I think would be tremendous. And ultimately, I do think folks are thinking about this in an intelligent way. They don't want to squander innovation. So how do you continue to allow assets like Ethereum to kind of continue to flourish in the US, but then do so in a way that gives certain guardrails that as companies are building on Ethereum, building products,

building services, that they're doing it in a way that doesn't run afoul of any existing legislation or any existing rules and still thinks about protecting investors. These are the kinds of frameworks and the kinds of conversations we are having. And I know some other important industry players like Coinbase and others are also down in DC often trying to ensure that because crypto is smaller than a lot of the other industries these folks look at and are responsible for overseeing, these types of conversations are not lost on them, not forgotten. I want to circle back to the importance of the ETF for one specific reason.

You alluded to the idea that you believe there's this, I'll call it a wall of money, awaiting entry into the crypto space. I think we've long awaited the pensions, sovereign wealth, endowments, the really, really huge money. Is the ETF the simple unlock to that? Or do you think that we get... I mean, it's possible we get an ETF and they're just not interested, right? No. I mean, I think today when you look at who holds ETFs here in the US, yes, there's a lot of retail activity among ETFs, but the largest holders are actually in many cases institutions, right?

It's in many ways an easy and accessible way to get exposure to a given asset or subset of the market. And so I think when you think about the data that keeps getting surveyed from the financial advisor community, from the individual investor community, as well as institutions, I think many of them would say that there are complications that do come from the attempt to buy hold crypto directly or set up an exchange account or who it said institutions should and should have access to keys, what happens if they're no longer employed there. I mean, the list goes on and on. So I do certainly think that an ETF will unlock a much larger audience that will then have a very known and kind of easy way to interact with crypto. And I do believe that'll lead

to inflows and increasing the monetary base that resides within Bitcoin itself. Well, a half a percent allocation from some of these would fundamentally change everything for the crypto landscape. Indeed. Do you think that an ETF also could encourage more companies to follow the likes of MicroStrategy and Tesla, which sort of caused that last major bull run, right? People forget that MicroStrategy putting Bitcoin on the balance sheet was sort of the big catalyst, but accounting rules really made that difficult for any other company. That would be solved by an ETF as well, correct?

You could put the Bitcoin spot ETF on your balance sheet and not have to worry about where you market to market or taking effectively the lowest price of the quarter and marking it to that. In our conversations with CFOs and treasurers, corporates and other entities that have to manage a balance sheet, they've certainly more than turned the corner from why to kind of why not, right? And that was probably a little bit more prevalent in a lower interest rate environment. And so maybe some of them have not felt as strong towards crypto as rates have risen, and they've found other ways to manage collateral on their balance sheet and earn yield. But I think many of them believe that over the long term, this allocation is going to increase and it's important that at least some of

their balance sheet shows up to this asset class for sure. Yeah, that makes perfect sense. I know we only have a few minutes left. Is there anything else that you're really excited about? I'm trying these days to focus a little less on all the negative things that have happened over the past years because to me, it's now noise and not signal. And honestly, it's just exhausting. So is there anything you're seeing in the space? It doesn't even have to be specific from grayscale that you're seeing being built or that's really encouraging for you that you're excited about? Well, certainly one thing that's ticked up over the last couple of months is the idea of ordinals, which I think is super interesting. You know, I think I continue to be impressed with how crypto as an industry continues to unlock new use cases.

And I feel super fortunate to be in the seat that I am where I'm often seeing this relatively early, right? We were looking at and talking about the metaverse as early as probably 2018 before that was like even a colloquial word that is kind of part of everyday kind of conversation. And so I'm kind of excited more about the unknown, Scott, and I know you may not love that answer. I do love that answer, actually, because each cycle is driven by... I do love that answer, and I'll let you finish. I'm sorry. Because each cycle has always been driven by something that I didn't predict right before the cycle happened. Yeah. I mean, the idea that maybe NFTs don't persist in the kind of format and come to know and use them like digital art

and things like that, but instead unlocking other ideas around ticketing and authenticity and provenance and things of that nature. I think that's really exciting, right? And I'm kind of excited for what else is going to come that we haven't even thought of yet as a community. And that's what's so exciting and transformative about this asset class.

We weren't talking about these things 24 months ago. So what are we going to be talking about in 24 months? And I hope you'll have me back and we'll talk about it. Yeah, we can circle back and talk about it for sure. So really quickly, is there anything that the general public, people who are listening to this can do? Is there anyone they can contact? Should we push on our legislators? Should we be sending letters to the SEC to help make sure that we do see a spot ETF? Or at the moment in the hands of the court, but that's not to say that, you know, people should not, you know, also be contacting their legislators. I think we certainly saw a lot of politicians run on the idea of crypto and Bitcoin during the midterm elections. And it'll be interesting to see how that, you know, transpires as we move forward. What's interesting is that, you know, this is a for once, an issue in Washington that has bipartisan support, which is really, really unique. And having bipartisan support, you know, gives me honest hope that legislation will come from this. But I think

regardless, I'll kind of leave you with this, whether you were or you are, you will be a GBTC holder or stock Bitcoin ETF holder, whether you hold or did hold or will hold Bitcoin or some other asset, I cannot overemphasize enough the importance of this lawsuit and your giving support to it. The outcome of this lawsuit, I think, is not just about the conversion of GBTC to an ETF. I am confident that it will also ultimately influence the direction and the posturing that regulators take towards Bitcoin over the short to medium term. And so the implications are even further reaching and further value impacting than that billions of dollars that'll be unlocked from GBTC directly in ETF format, but also

on the crypto market more broadly. Robert Leonardus A win for Grayscale is a win for the entire industry. Michael Levin Exactly. Robert Leonardus Bottom line. Well, thank you so much for taking the time, Michael. It was really a pleasure. I'm glad we finally got to sit down and you were absolutely invited back. Good. I appreciate it. 24 months, but I hope a lot sooner than that. We might even need to circle back in like two months, right? After the lawsuit is settled and talk about that.

I'd love that. Thank you, Scott. Appreciate it. Thank you so much.