Lets bring in michael sunshine, the ceo of grayscale investments, Music, so its first of all its great to have you in person. We are here in brooklyn its a beautiful day. Thank you for having me great to be here so lets kind of start off about your uh flagship product. That is your grayscale bitcoin trust uh. Broadly, though, its been getting a lot of attention because it was obviously there in the space early but now theres a lot of interest in these bitcoin futures etfs, which is kind of underscored. The hunger for new types of investment vehicles to get exposure to bitcoin. Tell us a little bit about the kind of aerial view. If you will of the demand for different ways to get exposure to crypto products yeah. This is many many years in the making, so our flagship fund, the grayscale bitcoin trust trades under symbol gbtc. This is the largest bitcoin investment vehicle in the world. It holds about three and a half percent of the outstanding bitcoin supply, and so we have been working proactively with regulators. All the way back to 2016 to convert the product into an etf and so whats, been really encouraging to see from our seat is that regulators have now really paid a lot more attention to the asset class weve seen the approval of a bitcoin futures etf. But we still dont yet have that bitcoin, spot etf, right and so its been very interesting to watch in the market.

How investors have been digesting this were paying attention to the performance of bitcoin, the performance of the bitcoin futures products and actually the outperformance of gbtc compared to some of those and so theres a real compelling case amongst investors to have that spot exposure? And i think thats important for them, because theyre recognizing that there are roll costs and all kinds of other things. So when we talk to regulators its important that they keep that playing field level and let investors choose between futures and spot, so lets kind of unpack. That, though, because it was interesting to see a lot of the media reporting when weve got that first pro shares uh, bitcoin, futures, etf and people were describing it as the bitcoin etf is here right, but its not quite a bitcoin etf right, a bitcoin futures etf Is pinned to those contracts that are traded on the chicago mercantile exchange, whereas what youre describing with spot would be underlying exposure to bitcoin itself or what some people call physical sure whats the importance in the delineation between those two types of things? Well, i think what weve typically seen for commodity based etfs is when the underlying commodity is easily stored, something like gold. For example, youve seen investors gravitate towards the product that physically holds that commodity, even though there are derivative products, futures based products. So in the case of bitcoin, because again it is able to be physically stored quite easily.

The physical etf is really where investors have. You know tried to go towards because you do have to think about costs as an investor owning an etf that has future contracts underlying. It means that, as they come up for expiration theres going to be costs to the fund that are going to make their way back to investors that are going to impact their investment, and so again from a regulators perspective its important to give them both the opportunity To decide between futures or spot so lets kind of, take a big step back also and just recognize that the regulatory future for a bitcoin spy etf is still a bit unclear right now and in fact we did speak with sec chair gary gensler two weeks ago About the prospects of a spot etf after at that point in time, futures etfs had already started trading ill, take a listen to what he said to yahoo finance a few weeks ago. Brian, you can imagine im not going to speak to any individual filings. That might be in front of us or prejudge anything, but i think that the concern for the investing public is the crypto asset space, two plus two and a half trillion dollars. Most of it has not come within an investor protection remit, and thus investors, arent uh protected the way they are, whether they go into the stock or bond markets that weve overseen for so long. Without that, i think that its really is, as ive said, to others a bit of the wild west.

A bit of the wild west hes used that language before. But when you see the securities and exchange commission chair saying something like that and again he wasnt saying im going to comment on any individual application, including grayscales sure uh. Do you read that as a positive or a negative development, because it sounds like theres still some skepticism from him about the underlying issue from the secs remit, which is investor protection, its an important distinction to be had here? Because what weve seen come out of the agency over the last few years is really just concern over the underlying bitcoin market. Things like pricing, manipulation, um, regulated markets of significant size and what the industry is telling the regulator here is that, if youre comfortable with the derivatives right, we now have a bitcoin futures based etf and those futures contracts are deriving their pricing from the spot market itself. Then youre inherently also saying youre comfortable with the spot market, so i think, as we continue to engage with the regulatory community, its important, that we drive home, that narrative and distinction – and importantly this is not just about the investment community now. This has also become a bit of a political issue. In the last week, weve actually seen bipartisan support for a bitcoin spot etf from um, emmer and and soto um, submitting a letter to the chair actually advocating for this and ensuring again that there is a level playing field amongst these applications out there and that investors Really do have the optionality so uh lets zoom out and talk about the etf space.

Arguably a space thats, just as hot as crypto is ets. People just want these types of products across the board um. Obviously, when it comes to grayscale its, not just that bitcoin trust et bitcoin trust product that you offer, but you also have this future of finance etf. That youve launched so tell us about the popularity of etfs. Why do you think that these types of investment vehicles, these passively run etf products, have become so hot over the last two to three years? Well, i think many investors are really thinking through the lens of thematic investing these days and so when they think about building out diversified portfolios. What kind of exposure they want when there is that familiar etf wrapper, and it has the protections that it does. Investors gravitate towards it because it alleviates the need for them to compile their own investments and instead get that thematic exposure. In the case of the grayscale future of finance etf, there weve tried to really carve out a new niche within the market where were really trying to advocate for companies that would, in theory, be in this fund. If and when it launches, that really are at the intersection of technology, financial services and digital assets really focusing on infrastructure and plumbing, that is going to unlock a lot of the opportunities that both we are excited about as well as certainly our investors are as well. There are a lot of etfs out there, though right.

So how do you carve that space out in a place that hasnt already been carved out theres? A lot of i mean you see: arc, invest, for example, getting into certain types of etfs that they want to keep as thematic as well. Is it difficult to try to carve that out, and especially because these types of vehicles are by nature passively manageable? A lot of these etfs at least um, does that make it difficult to message to prospective investors that hey this is what grayscales doing. This is what makes us different from everyone else. Well, a lot of what were doing with the future of finance filing is really trying to meet rising investor demand. Investors at grayscale clearly already allocating to digital assets themselves, and so they often think. Where else do they need to have exposure if they really want to double down on this industry and its continued growth, and a lot of that comes back to infrastructure and plumbing thats really going to allow that connectivity to take place? People love talking about plumbing? I want to switch gears now to uh the metaverse, of course, big news, obviously out of facebook, but i mean this is important because it seems like the the definition of stake and ownership is going to change with this metaverse coming out. Right, crypto and other types of these types of decentralized platforms will allow people to take ownership. Once the metaverse comes out. How important is that going to be, i mean not to say thats, the reason why bitcoin is over sixty seven thousand dollars right, but it does have some some some connection.

How does grayscale think about the opportunity and what could be this next wave of the internet? Okay, so i really appreciate the question this is gon na need a little bit of time, so bear with me. Okay, we got plenty about. You know. Six, seven years ago, the word blockchain was being thrown around um without people really having a fundamental understanding of what the technology actually was or what its use cases would be, and here we are today and blockchain is certainly a colloquial word thats being used right. You fast forward to what weve seen over the last few weeks and months and all of a sudden. The word metaverse is being tossed around quite a bit, were even seeing companies changing their names to advocate for or indicate that theyre moving towards supporting metaverse applications at its core. A metaverse is where digital experiences take place and to understand why theres so much excitement around this. I think its important to reverse the clock and go back to the layers of the internet. So if you go back to the web 1.0 – and this has been built up over decades – you really saw the emergence of for the first time a read, only digital interface, where we could get information, you didnt have to wrap that right. You couldnt go. You didnt need to go to the library anymore. You didnt need to read a book or pick up an encyclopedia that then was dragged forward into the web 2.

0 that not only allowed us to have that read only experience but then connected everybody through e commerce through um social media networks, things that were using today And that we, quite frankly, cant imagine our lives without, but whats important to think about there is that all the value exchange that was taking place in the web 2.0 was still causing us to rely on those social media networks. Those e commerce giants. What were now seeing as we move to the web 3.0 and are maybe just on the dawn of the web 3.0, is that that value is actually being returned to the individuals and users within this digital economy. And so, when you think about the idea of a metaverse, you know lets lets just suspend belief for one second, okay, imagine that you can go to a concert without leaving your couch. Imagine you own land um that you will never set foot on, but that has material value. These are the types of digital experiences that metaverse um applications unlock and were now seeing a lot of the confluence of gaming virtual reality and social media networks converging around these ideas, and there are a lot of really exciting applications out there. Weve long been believers in decentraland, which is a decentralized metaverse. It has a native token called mana. So these are the types of applications where were starting to see user adoption and growth, but again very very early days, for it so just be clear: youre not going to change your name, though, to meta grayscale or anything like that.

Not not right. Now no announcement youd like to share with the crowd, i i wouldnt say never, but not at the moment. Everyone heard that right um. Now i want to ask, though, because its interesting you talk about decentralized right. There are obviously its not just one its not like facebook is the only one creating a metaverse, but if it is indeed the case that its going to be these big companies driving a lot of this doesnt. That kind of represent the antithesis of all this. That itll be a large social media company having a lot of ownership all this and that yeah you can have pieces of share ownership through. Maybe some of these types of you know decentralized, finance, related platforms or crypto currencies and what have you that its still going to be controlled by the big guys, though it remains to be seen, and i think thats whats, potentially so disruptive about decentralized, metaverse applications there. Philosophically is going to be a disconnect whether or not individuals and users want their metaverse experiences, captured, recorded and monetized by these centralized platforms or if, in fact, those experiences are going to move to more decentralized applications where again, that value and the experience and whats owned Is really back in the hands of the individual, so whats interesting is that you know grayscale investments right. I guess its not like youre going to have a grayscale investments theme park or something like that in the metaverse.

So what how can grayscale investments from the business model that you have now scale up to take advantage of all the opportunities that you just described? Well, i think today, weve seen strong receptivity um in the grayscale decentraland trust, so whats interesting about some of these decentralized metaverse applications is that they have a native currency. So it creates this really interesting feedback mechanism, where individuals cannot only receive the native currency of the application as theyre providing goods and services in the metaverse, but they can also turn around and use that native currency within the metaverse as well, and so, for example, decentraland Has its own native currency mana, and so that is one way that investors could think about putting some money to work in an asset that is going to. You know potentially appreciate with the rise of a metaverse like decentraland itself and so thats, just one of several applications and were always, you know, scouring the landscape looking for other assets that we can also bring to our investors. Okay, so so just for people whose brains are melting a little bit, because mine certainly is right now so does that mean that there could be a grayscale investments, etf, pegged to mana a la whatever the runescape currency was back in the day. It would be a product that you would offer that would be pegged to those types of currencies that are available in these gaming or metaverse experiences yeah. So we already offer the grayscale decentraland trust.

So today, investors can buy into the trust itself and it gives them passive exposure to mana um but thats, not to say that we wont continue to look for other metaverse opportunities to bring to investors as well. Okay, so uh lets kind of talk about the competition. Then, in this space right i mean you know, the metaverse is something that people have been talking about for some time. Of course, it kind of exploded when we saw mark zuckerberg have that keynote uh not long ago, but is there a lot of competition in this space? Do you feel like youre, a first mover already or do you feel like there is still kind of a room to play around with other types of uh providers as well? I think the rising tide lifts all boats. I think that if you had asked me 18 months ago, if we would have seen you know fortune, 500 companies uh holding bitcoin on their balance sheet, i would have told you brian. That would be amazing, but its probably not going to happen, and you know here we are today and those types of things are a reality um. You know we wouldnt have necessarily seen uh entire nation states declaring bitcoin as legal tender, and so when i think about all the different ways that were seeing adoption and growth, whether it is other asset managers, whether it is some of that plumbing and infrastructure, were truly Still at such an early stage for the growth and development of this asset class that from our seat, we welcome more and more people into this community to spread awareness.

Um make sure the right information is getting into the hands of investors and that any preconceived notions are really cleared up. Thats really nice segue, as we kind of start to come around full circle, because the metaverse is a little bit out there, but coming to just the broad crypto space volatility right as someone that is watching this space very closely to see what the investor demand is. Theres still a considerable amount of volatility, not just in bitcoin but in other types of cryptocurrencies as well. That weve seen emerge. So do you feel, like things have kind of calmed down in the crypto space, its a little bit easier from a financial standpoint to figure out what is the true value of something, or is it still pretty difficult? I think volatility has been inherent to the asset class. You know since the beginning and is still very much alive and well today. I think what certainly has changed, though, and has also been a catalyst to draw more investment into the asset class, is today that we have the healthiest two sided market weve ever had before thats, not only because we now have derivatives, we have borrowing and lending um. These are the types of tools that investors are used to having at their disposal when they think about accessing an asset class. And if we look back four five years ago, those just werent absent those were completely absent, rather um from the asset class.

And so today, the emergence of those tools are really really important and, i think, can help to dampen volatility, but nonetheless, the investors who are actioning investment today um, are doing so knowing full and well that crypto and their investments are inherently going to have volatility associated With them and were about to come full circle back to bitcoin etfs, do you feel like theres any impact on liquidity from a bitcoin etf somewhere down the line, because weve seen that as issues in commodities etfs in the past, where its been the case that one Holder has a lot of the commodity thats being held in that etf thats affected the price itself. Is there any concern about that for some of these crypto etfs? I think that certainly the popularity um and usage of gbtc, which i think would probably be the closest proxy today for an etf, although it is not one um, would definitely demonstrate that there is certainly an investor use case for a bitcoin spot etf. That being said, based on the work that my team does investor sentiment, studies that we do every year, there is still an important cohort of investors that is waiting on the sidelines before theyll get invested until they have the protections and familiarity of an etf wrapper. So we are certainly of the belief that a bitcoin etf could be a material catalyst to draw in more investors and more capital. So last question here: what is the big picture future for investment in the crypto space were not talking about bitcoin etfs were not talking about bitcoin futures etfs.

When you look five six years down the line, you expect bitcoin spot etfs to be part of that picture and what other types of things well its tough to say what will exactly be a part of that picture? I think, instead, where we think um and its hard to associate a timeline with it, is that a lot of the things that exist today, um many of them, will will fizzle out um. You know over time. The barriers to entry to create new digital currencies has lowered so much that we now have thousands upon thousands of digital currencies and so its conceivable to think that as this asset class, matures that investment will center around a handful of currencies, each with distinguishable markets and Use cases and prices, but not a world in which there are thousands upon thousands of digital currencies, all right, michael sonenshine, ceo of great investments, at least thats, what its called for right now, thanks again for having on yahoo finance.

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