After BTC ETF Win, Grayscale’s CLO Looks Ahead to ETH ETF

Grayscale’s Craig Salm discusses the Bitcoin ETF win, and the Ethereum ETF process to come

By: André Beganski

January 11, 2024

It took a full decade for $GBTC manager Grayscale to convert its flagship Bitcoin fund into a spot Bitcoin ETF. But the firm’s Chief Legal Officer, Craig Salm, is optimistic that Ethereum’s Wall Street debut isn’t so far off on the horizon among its 17 digital asset products.

“I don't know how long it will take, but I do think eventually we can get there,” he said. “We finally got there with Bitcoin. It was certainly a long road, and depending on who you speak to, they might think it was too long.”

While the conversion of Grayscale’s Bitcoin Trust from a closed-end fund to a spot ETF on the NYSE Arca exchange represents a watershed moment for crypto’s top coin, Salm said the Securities and Exchange Commission’s recent approval could also influence the firm’s pending application to convert Grayscale’s Ethereum Trust into a spot Ethereum ETF.

“It's only natural that as you move down the spectrum of different crypto assets that have even more complicated types of use cases, like Ethereum with smart contracts or getting into decentralized finance, laying on the traditional financial use cases on top of crypto, there's naturally going to be more questions that come up,” Salm told Coinage on Thursday.

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Grayscale sued the SEC over the agency’s rejection of an application to convert $GBTC into an ETF in June of 2022, a full year before financial titans like BlackRock, one of the world’s largest asset managers, cast its name into the ring of existing spot Bitcoin ETF hopefuls.

While the SEC argued Grayscale failed to include enough in its application that would protect investors from “fraudulent and manipulative acts and practices” in Bitcoin’s spot market, a D.C. court ultimately found the SEC’s explanation flawed. A panel of judges found the SEC’s denial “arbitrary and capricious,” and that language has seeped into crypto’s greater lexicon, whether that’s politicians like Vivek Ramaswamy or Coinbase CLO Paul Grewal using the term.

One area where the court applied particular scrutiny to the SEC was the regulator’s decision to deny spot-based Bitcoin products yet approve futures-based ETFs, which track contracts on venues like the Chicago Mercantile Exchange, and launched in late 2021.

“Right now, Ethereum is the only other crypto asset that has CME traded futures, so I think we should be there,” Salm said. “But it's a matter of continuing to engage with the SEC addressing questions they may have and then just taking it from there.”

On its first day as a full-fledged ETF, nearly $2 billion worth of shares in $GBTC had traded hands, as of this writing, according to data from CNBC. Though it’s unclear what portion of $GBTC’s volume was inflows versus outflows, the product’s volume had outpaced around $905 million notched by BlackRock’s iShares Bitcoin Trust at that time.

Before spot Bitcoin ETFs began trading on Thursday, Bloomberg Intelligence Analyst Eric Balchunas described $GTBC’s $28 billion market cap as “bringing a (volume) gun to a knife fight” on X. While conducive to better liquidity and tight spreads on trades, Blachunas still wondered if $GBTC’s market cap could outweigh its 1.5%, “advisor-repelling” management fee, which is the highest of any spot Bitcoin ETF approved this week.

“We have for a long time been telegraphing that we would reduce the management fee of $GBTC upon it becoming an ETF,” Salm said, pointing to a management fee reduction this week from 2%. “We feel $GBTC has and will continue to be a world-class product for investors.”

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