Grayscale Takes Another Step in its Goal of Becoming a Bitcoin ETF Giant

Grayscale Investments has appointed New York-based custodian BNY Mellon to provide accounting and administrative services starting in October for Grayscale Bitcoin Trust (GBTC), the world’s biggest publicly-traded Bitcoin fund. The move is intended to be a major step toward GBTC’s eventual conversion into an exchange-traded fund.

The move represents a coming together of two giants from their respective industries to provide services to crypto investors. GBTC, which trades in OTC markets, manages more than $20 billion worth of assets and has been cited by analysts as a key factor affecting Bitcoin's price. BNY Mellon is the world’s biggest custodian bank and has more than $2 trillion worth of assets under management. 

“Engaging BNY Mellon is an important milestone as part of our commitment to converting Grayscale Bitcoin Trust into an ETF,” stated Michael Sonnenshein, CEO of Grayscale Investments, LLC, the fund’s parent company, in a press release. “BNY Mellon has a long-standing reputation as a trusted provider and has established one of the first teams dedicated to servicing the growing digital currency asset class.” 

The announcement also marks BNY Mellon's expanded presence in the cryptocurrency ecosystem. The custodian already provides its services to prominent ETFs. Earlier this year, it announced an investment into a crypto startup and set up a team to design cryptocurrency management services for clients.  According to the press release, the arrangement will provide Grayscale with access to BNY Mellon’s proprietary ETF center which has developed technology to support digital asset ETFs.   

A Skeptical Regulator 

Grayscale’s ambitions to become a bitcoin ETF will have to contend with the reality of a skeptical regulator, however. Over the years, several startups and companies have filed applications for a Bitcoin ETF with the Securities and Exchange Commission (SEC) and failed in their bid. It outlined its main concerns in a January 2018 letter. 

At that time, fresh on the heels of a bubble in crypto, the agency cited potential for manipulation of cryptocurrency markets, wild price swings for individual cryptocurrencies, and minimal investor protection at cryptocurrency exchanges among other reasons to disallow a Bitcoin ETF. 

Recent events have demonstrated that the situation has not changed much. For example, the world’s biggest cryptocurrency exchange by trading volume, Binance, faces a class action lawsuit from investors who suffered losses due to outages on its futures platform. Grayscale’s flagship fund exemplifies the instability and wild price swings in cryptocurrency markets: its shares trade at significant premiums and discounts to the price of Bitcoin. 

Despite a growing stack of ETF applications, the SEC is postponing final decisions on them. “Investors should be aware - I’m saying this is in my own voice - that in the underlying Bitcoin cash markets there’s not the robust oversight that you have in the stock market or the derivatives markets,” SEC chief Gary Gensler told CNBC last month.

Given the skeptical view of Gensler, who is an appointee of President Biden, Grayscale may have to wait for years to make its vision of a Bitcoin ETF a reality.