Crypto asset manager Grayscale Investments has announced the launch of Grayscale Funds Trust, a new entity managing its growing funds. Simultaneously, the firm has filed for three new crypto-focused ETFs (exchange-traded funds) with the United States Securities and Exchange Commission (SEC). The proposed ETFs include Ethereum Futures ETF, Global Bitcoin Composite ETF, and a Privacy ETF.
The launch of Grayscale Funds Trust signifies the company's intent to manage several of its publicly traded financial products in-house. The Global Bitcoin Composite ETF will invest in exchange-traded products related to or backed by Bitcoin, including Bitcoin mining firms. The Ethereum Futures ETF aims to offer indirect exposure to Ether's potential future value through shares tracking its price. The Grayscale Privacy ETF, meanwhile, intends to invest in companies working on blockchain-based privacy technology.
As it stands, the three ETFs are unavailable for public purchase until the SEC approves the registration statement related to Grayscale Funds Trust. This development follows Grayscale's ongoing conflict with the SEC concerning the conversion of its $17 billion Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF product. Grayscale sued the regulator for denying its application, arguing the SEC's treatment of crypto spot-traded exchange-traded products differed from futures products.
Despite the SEC's approval of several Bitcoin Futures ETFs, it has rejected all applications for a spot Bitcoin investment product due to concerns about exposing investors to potential fraud and market manipulation. Grayscale's expansion into the ETF business, combined with its ongoing legal conflict with the SEC, points to the complexity of terms and agreements between massive firms working on crypto-focused investments.
Concerns On Rule Changes
Grayscale CEO Michael Sonnenshein has expressed concerns that the SEC's proposed rule changes regarding the safeguarding of clients' crypto funds could prevent the company from using Coinbase as the sole holder of $5.4 billion of its crypto assets. The SEC's proposal aims to make investment advisers responsible for securing the custody of their clients' assets, which could pose challenges for centralized exchanges like Coinbase or any platform managing clients' assets through Coinbase.
Currently, Grayscale controls the Grayscale Bitcoin Trust (GBTC) and the Grayscale Ethereum Trust (ETHE), which collectively hold around $5.4 billion in Bitcoin and ether. These funds are entirely held by Coinbase through the Coinbase Custody Trust Company, using offline cold storafge and unique on-chain addresses to avoid commingling with other clients' funds. Grayscale's reliance on expert third-party custodians for safekeeping clients' assets follows the norm for traditional asset managers, and Sonnenshein asserts that none of their custodians have ever experienced a loss of client assets.
The SEC's proposed rule could significantly disrupt Grayscale's model for storing its $5.4 billion in client assets. Sonnenshein warns the SEC against taking action that might impose considerable new costs, risks, and burdens without added benefits.
Coinbase, from its end, has also expressed concerns about the proposed rule, arguing that it would not benefit registered investment advisers (RIAs) or their clients and could harm them. SEC's comment period comes to an end this month, placing into question Grayscale's relationship with Coinbase and the potential implications that this may spell out.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
