SEC Didn’t Protect Consumers with Grayscale BTC Trust: Mike Novogratz
3 min read
Galaxy Digital is one of several financial firms aiming to launch a BTC exchange-traded fund (ETF) in the United States, pending approval from the US Securities and Exchange Commission (SEC). Founder and CEO Mike Novogratz, the longtime crypto investor, isn’t thrilled with how the agency has handled the situation up until now, however.
In a discussion with New York Magazine’s Jen Wieczner during today’s Ethereal Summit, Novogratz suggested that the Grayscale BTC Trust (GBTC)—which lets investors purchase shares in a fund that holds large amounts of the cryptocurrency—has been a bad deal for consumers in the absence of a true BTC ETF.
“The job of regulators is to take care of the consumer, and I don’t think they did a great job of it in the [Trump] administration,” Novogratz said. “Just look at the Grayscale Trust, which was a great piece of business if you were Grayscale. But if you’re a consumer, you were buying BTC at a 20-30% premium being arbitraged by hedge funds into a closed-end fund—where an ETF would have been a much more elegant solution. When I look at the SEC, I give them a low grade on that.”
A BTC ETF is a publicly-traded investment vehicle that tracks the price of the cryptocurrency, allowing investors to gain exposure to BTC without actually buying and taking custody of it.
At least eight firms, Galaxy Digital included, have filed to operate a BTC ETF. Tyler and Cameron Winklevoss, co-founders of cryptocurrency exchange Gemini, were the first to file an application back in 2013 for a Winklevoss BTC Trust—but the application was not approved. Canada has multiple active BTC ETFs, as does Brazil, but the SEC has yet to approve a single US fund.
The Grayscale BTC Trust was seen as a savvy investment by some as the price of BTC surged over the last year. However, GBTC has recently traded at a discount as BTC’s price gains have leveled out, drawing the ire of some prominent investors, plus buyers are subject to Grayscale’s management fee. Grayscale recently announced that it is “100% committed” to converting the fund into a BTC ETF, but for now, Novogratz suggests that it is an inelegant alternative to the real deal.
“[The SEC] allowed one product that I think was not as good for the consumer,” Novogratz said of GBTC. “For a while, consumers did great on it and [founder and CEO] Barry Silbert gets a lot of credit because he put out a product that gave people their first access to BTC, right? We all owe him a round of applause and thanks, because he brought people into that tent. […] But if I was the SEC, I’d have said, ‘If you’re going to bring people into the tent, bring people into a tent that’s more consumer-safe.’”
Novogratz is more optimistic about the future of SEC regulation under newly-seated chairman Gary Gensler in the Biden administration. Gensler is seen as, if not crypto-friendly, at least a crypto-knowledgeable chairman, and Novogratz believes that his SEC will provide needed regulation to bring more institutional investors into the crypto industry. Certainly, Novogratz is eager to see the SEC change its views on BTC ETFs after years without any approvals.
“Gary Gensler is going to be great for our ecosystem,” said Novogratz. “He is a very smart and practical guy that understands this space. We will get regulation, but I think we will get smart regulation.”
