Michael Bodley

Barbarians Are at Grayscale’s Gates. Can They Take Over GBTC?

Ben Strack

<div id="highlights-block_633c27eda9ce4" class="highlights">
 <ul>
 <li>Pensions, endowments and corporations likely to pivot to these types of products once markets stabilize, according to Valkyrie’s head of distribution</li>
 <li>SMA wrappers allow for more curated exposure management than other securities offerings</li>
 </ul>
 
</div>



Valkyrie Investments has added new separately managed accounts (SMAs) for financial pros looking to offer crypto exposure to clients, becoming the latest fund group to utilize the wrapper.&nbsp;



The launch comes on the heels of similar offerings by Franklin Templeton and Ark Invest as industry watchers have said various institutions are seeking entry points into the asset class despite the bear market.&nbsp;



Financial wrappers allow pools of assets to be structured and sold as a single security — in this case, cryptocurrencies into an SMA.



Available to financial professionals and registered investment advisors (RIAs), Valkyrie’s new SMAs include a strategy focused on bitcoin, one investing in bitcoin and ether, and another more diversified option.&nbsp;



The latter SMA holds between five and 10 of the company’s highest-conviction opportunities across layer-1 and layer-2 protocols.&nbsp;Aside from BTC and ETH, the portfolio currently includes solana (SOL), polygon (MATIC) and polkadot (DOT), according to a fact sheet.&nbsp;



While the bitcoin and BTC/ETH accounts aim to maintain at least half of the portfolio in those assets, the diversified SMA seeks a minimum position of 40% in digital assets — with the remaining assets parked in cash. The three accounts each carry a management fee of 150 basis points and have minimum investments of $25,000. Gemini is the custodian for the SMAs.



<h3 class="wp-block-heading">Crypto SMAs allow direct ownership of digital assets</h3>



Valkyrie has three crypto-focused ETFs trading in the US with about $20 million in combined assets: Bitcoin Strategy (BTF), Bitcoin Miners (WGMI) and Balance Sheet Opportunities (VBB), the latter of which consisting of public companies with bitcoin exposure. 



Those three offerings are down between 52% and 67% year to date, alongside wider crypto markets. The Tennessee-based firm, which launched <a href="https://cms.blockworks.co/valkyrie-launches-its-first-multi-coin-trust/" target="_blank" rel="noreferrer noopener">its first multi-coin trust</a> for accredited investors in April and an <a href="https://cms.blockworks.co/crypto-asset-manager-valkyrie-launches-avalanche-trust-for-accredited-investors/" target="_blank" rel="noreferrer noopener">Avalanche-focused investment vehicle</a> the following month, is now using a different vehicle to offer exposure to the segment.



SMAs allow investors to have direct ownership of digital assets without the risk of holding them in separate wallets or on brokerage or lending platforms, John Key, Valkyrie’s head of distribution, told Blockworks. This is opposed to ETFs and other ETPs, in which investors own shares in the underlying fund, rather than its assets.



The SMA wrapper can be attractive to asset managers, advisers, RIAs and family offices in part because of the vehicle’s prevalence in traditional markets, he added.



“As the macro-economic picture and the broader financial markets have continued to deteriorate, more investors are starting to see this as an opportunity at an attractive entry point, based on beliefs over where long-term valuations may head,” Key said.&nbsp;



“Eventually, based on conversations we’re currently having with pensions, endowments, corporates and other large institutions, we expect them to pivot to these kinds of products once the markets stabilize and they become comfortable with the track record.”



<h3 class="wp-block-heading">Not just Valkyrie: TradFi is trending towards SMAs</h3>



The new Valkyrie SMAs continue somewhat of a trend in crypto product development, as more fund managers are utilizing the vehicle for the asset class.



Franklin Templeton, which manages roughly $1.4 trillion in assets, <a href="https://cms.blockworks.co/franklin-templeton-preps-first-institutional-crypto-accounts/" target="_blank" rel="noreferrer noopener">revealed last month</a> that it would be making available two crypto-focused SMAs. <a href="https://cms.blockworks.co/ark-invest-jumps-into-crypto-sma-arena/" target="_blank" rel="noreferrer noopener">Ark Invest said Monday</a> that it would offer similar accounts later this month.



<a href="https://www.cerulli.com/press-releases/cryptocurrency-hits-advisors-radars" target="_blank" rel="noreferrer noopener">A survey</a> published in March by Cerulli Associates found that 45% of financial advisers expected to use crypto in the next two years due to client requests.



Nina Tannenbaum, head of business operations at Algorand, said that crypto SMAs will become even more prevalent as institutions start to add early exposure to more traditional portfolios.



“They allow portfolio managers to cultivate an isolated investment and risk profile across their desired crypto exposures while ringfencing from the broader portfolio,” Tannenbaum told Blockworks.&nbsp;



“This will enable more curated exposure management, easier risk oversight and hedging of the direct crypto exposures, while also affording the chance to contract with best-in-class crypto sub-advisors and Web3 asset managers.”



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Valkyrie Adds Crypto SMAs as Institutions Eye Digital Assets

<div id="highlights-block_6274215980e39" class="highlights">
 <ul>
 <li>“We do believe that today’s news puts us closer to an eventual [spot bitcoin ETF] approval,” Valkyrie’s CIO told Blockworks</li>
 <li>The SEC approved a similar fund by asset manager Teucrium last month</li>
 </ul>
 
</div>



The SEC has signed off on the second bitcoin futures ETF filed under the same regulation that spot bitcoin ETF hopefuls have relied on — albeit unsuccessfully, so far.



Valkyrie Investments is eager to bring to market its <a href="https://www.sec.gov/rules/sro/nasdaq/2022/34-94853.pdf" target="_blank" rel="noreferrer noopener">recently approved</a> Bitcoin Futures Fund (XBTO), Chief Investment Officer Steven McClurg told Blockworks via email. The vehicle was filed under the Securities Act of 1933 (’33 Act).



The firm did not immediately comment on a launch date.



The SEC first allowed ETFs that invest in bitcoin futures contracts to launch last October. <a href="https://cms.blockworks.co/first-bitcoin-futures-etf-nears-1b-on-first-day-of-trading/" target="_blank" rel="noreferrer noopener">ProShares</a> was first to market with such a product, and <a href="https://cms.blockworks.co/valkyries-btf-trades-10m-in-first-5-minutes/" target="_blank" rel="noreferrer noopener">Valkyrie</a> and <a href="https://cms.blockworks.co/vanecks-bitcoin-futures-etf-set-to-launch-tuesday/" target="_blank" rel="noreferrer noopener">VanEck</a> followed with similar funds. The three products were filed under the Investment Company Act of 1940 (’40 Act).



Regulators <a href="https://cms.blockworks.co/sec-approves-bitcoin-futures-etf-filed-under-the-33-act/" target="_blank" rel="noreferrer noopener">approved</a> the first bitcoin futures ETF filed under the ’33 Act, from fund group Teucrium, last month.



Grayscale Investments CEO Michael Sonnenshein said at the time the ruling weakens the SEC’s argument to deny spot bitcoin ETFs, noting that the agency previously cited differences between the ‘40 Act and ‘33 Act as a rationale for denial. Grayscale is seeking to convert its Bitcoin Trust (GBTC) to an ETF, and an SEC decision on the proposal is expected in July.&nbsp;



Valkyrie is one of a handful of ETF issuers aiming to bring to market a product that invests directly in bitcoin. Though such investment vehicles exist in Canada, Europe and Latin America, regulators in the US have so far denied all attempts to launch such an ETF.&nbsp;



“As for a spot Bitcoin ETF, we do believe that today’s news puts us closer to an eventual approval, but would hesitate to put a timeline on such a decision and are instead keen to continue working with regulators to help further satisfy warranted concerns and collaboratively work towards progress in this rapidly evolving asset class,” McClurg said. 



Though crypto firm executives remain unsure when the agency could approve a spot bitcoin ETF, <a href="https://cms.blockworks.co/crypto-execs-read-the-tea-leaves-on-spot-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">most believe</a> one won’t launch until 2023 at the earliest.



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Another Bitcoin Futures ETF Approved by SEC With No Spot Product in Sight

<div id="highlights-block_62605d9d486dd" class="highlights">
 <ul>
 <li>Industry at an “inflection point” where family offices and high-net-worth individuals are seeking multi-asset exposure, Valkyrie CIO says</li>
 <li>Trust currently invests in eight assets, including AVAX, BNB and ATOM</li>
 </ul>
 
</div>



Valkyrie Investments has launched its first multi-coin trust, as the product was designed to offer diversified exposure to protocols and pass along staking yields to investors.



The actively managed <a href="https://valkyrieinvest.com/trusts/valkyrie-multi-coin-trust/" target="_blank" rel="noreferrer noopener">Valkyrie Multi-Coin Trust</a> is focused on investing in blockchain networks and tokens that the firm believes are well-positioned to expand market share. It is for accredited investors only and has a minimum investment of $100,000.



The trust, which carries a management fee of 2.5%, was launched after discussions with potential investors looking for a product that represented the firm’s “highest-conviction plays” in the space, said Valkyrie Chief Investment Officer Steven McClurg.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“We launched this fund now because we believe the industry is at an inflection point where family offices, high-net-worth individuals and others are keen to enter the space and are looking for opportunities that go beyond just buying and holding a single asset,” he told Blockworks.</blockquote>



The trust currently allocates 10% of the fund’s capital to each of Avalanche (AVAX), Binance (BNB), Cosmos (ATOM), Helium (HNT), Terra (LUNA), Polygon (MATIC), and Zilliqa (ZIL), plus a 30% allocation to the Gemini USD (GUSD) stablecoin. The investments can change over time as crypto markets evolve.



“We believe that these protocols all have a bright, bullish future, and should see increased adoption and engagement in the coming years,” McClurg added, noting that the firm believes in the protocols’ founding teams and the projects being built on them.



Focusing on these coins also enables the firm to return staking yield to investors, he said, referring to the inflation rewards earned for participating in a network’s <a href="https://cms.blockworks.co/proof-of-work-vs-proof-of-stake-whats-the-difference/" target="_blank" rel="noreferrer noopener">proof-of-stake</a> consensus. The trust seeks to target an annual yield of four to six percent, and the fund’s custodian is Copper Technologies.



Based in Nashville, Valkyrie reached $1 billion in assets under management in February. The company currently offers six single-asset trusts focused on bitcoin, algorand, polkadot, dash, TRON and Zilliqa.&nbsp;&nbsp;&nbsp;



The firm also has three ETFs trading in the US, including a bitcoin miners ETFs and a <a href="https://cms.blockworks.co/valkyries-btf-trades-10m-in-first-5-minutes/" target="_blank" rel="noreferrer noopener">bitcoin strategy fund</a> that invests in futures contracts.



McClurg said Valkyrie has more ETFs and trusts in the works, but declined to share specifics. The company is one of a handful of issuers seeking to launch a spot bitcoin ETF, which the SEC <a href="https://cms.blockworks.co/crypto-execs-read-the-tea-leaves-on-spot-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">has not yet approved</a>.



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Valkyrie Launches its First Multi-coin Trust

<div id="highlights-block_625890c0e5a8b" class="highlights">
 <ul>
 <li>Crypto-focused panels included executives from Grayscale Investments, MicroStrategy, 21Shares, Nasdaq and Valkyrie Investments</li>
 <li>The conference will become even more crypto-centric within three years, a Gemini executive said</li>
 </ul>
 
</div>



Some of the world’s largest asset managers, with little to no interest in crypto, shared the stage with prominent digital asset natives during this week’s Exchange ETF conference in Miami.&nbsp;



The event followed the swarms of bitcoiners — and piggybacking proponents of other cryptocurrencies — that flocked to the streets, clubs and waterways of Miami for <a href="https://b.tc/conference/" target="_blank" rel="noreferrer noopener">Bitcoin 2022</a>.



Pippa Malmgren, a tech entrepreneur and economist, kicked off the conference by calling blue-chip Bored Ape Yacht Club NFTs a “revolution in finance.”&nbsp;



She likened Web3 to a “Windows update,” saying the growth of the metaverse will force traditional financial titans to pay attention.



“You’re just going to be in it — whether you like it or not — because everything you work with is going to get upgraded into that space,” Malmgren said. “It’s a very different creative process that you engage in when you enter these spaces, and that is where we’re going in the world of finance.”



Michael Sonnenshein, chief executive of Grayscale Investments, spoke about the company&#8217;s proposed conversion of its Grayscale Bitcoin Trust (GBTC) to an ETF.



The leader of the largest crypto asset manager — with more than $35 billion in assets under management — <a href="https://cms.blockworks.co/grayscale-ceo-spot-bitcoin-etf-approval-is-the-next-natural-step-for-sec/" target="_blank" rel="noreferrer noopener">doubled down</a> on remarks that “all options would be on the table” if the SEC denied the proposal, including suing the agency.



MicroStrategy CEO Michael Saylor — speaking with Frank Holmes, executive chairman of HIVE Blockchain Technologies — meanwhile, said the US government’s move to regulate digital assets is <a href="https://cms.blockworks.co/michael-saylor-bullish-on-promise-of-crypto-regulation/" target="_blank" rel="noreferrer noopener">“a green light” for the crypto economy</a>. MicroStrategy, the biggest global corporate buyer of bitcoin, now holds about $4 billion of bitcoin.



Valkyrie Chief Investment Officer Steven McClurg and Dave LaValle, Grayscale’s head of ETFs, made their own case for the value of digital assets.



Asked by an attendee why investors should purchase a bitcoin ETF when they can already own the cryptocurrency outright, LaValle said an ETF takes some of the uncertainty or “extraneous education” of owning crypto out of the process.



McClurg added that while it’s important for individuals to own their own crypto, such an investment vehicle is key for professionals to bring exposure to clients.&nbsp;&nbsp;



“We are in a room with a bunch of financial advisors, and if your clients own the coin directly, you can’t get paid,” McClurg said. “The best wrapper for you to put your clients in something like this is either a [separately managed account] or an ETF, because it’s easy.”



<h3 class="wp-block-heading">Off the stage</h3>



More than 2,200 people attended, including nearly 1,000 financial advisers and institutional investors, according to Matt Hougan, chief investment officer of crypto-focused Bitwise Asset Management and a conference co-founder.



ETF providers, index providers, exchanges, trading firms and service providers were among the event’s 124 sponsors, including “a significant number of crypto market participants,” Hougan said.



The booths of the likes of crypto-focused Grayscale, Valkyrie, Bitwise, Gemini and Osprey surrounded the larger, traditional asset managers in one of the Fontainebleau hotel’s largest rooms.



<div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="576" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg" alt="exchange ETF conference Miami" class="wp-image-20136" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=464 464w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Exchange-ETF-conference-1024x576.jpg?w=1600 1600w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Company booths were set up inside the Fontainebleau hotel in Miami | Source: Ben Strack for Blockworks</figcaption></figure></div>



Next to ARK Invest, which focuses on disruptive innovation, was Vanguard, for example.



A Vanguard spokesperson told Blockworks in January that “the risks of investing in cryptocurrencies are high, and the investment case is weak.”



Financial services titan Fidelity Investments announced during the conference that the crypto economy and metaverse ETFs it <a href="https://cms.blockworks.co/fidelity-plots-crypto-etfs/" target="_blank" rel="noreferrer noopener">had filed for in January</a> are set to launch on April 21.



“These are obviously two topics that are hot and of interest to our clients, and we want to be able to solve their needs,” Greg Friedman, Fidelity’s head of ETF management and strategy, told Blockworks. “Crypto is just another asset class.”



The ETF event’s outdoor oceanside lunch was sponsored by 21Shares, the world’s largest issuer of crypto exchange-traded products and a firm hoping to launch a spot bitcoin ETF in the US with Ark Invest. The firm’s CEO, Hany Rashwan, joined Blockworks reporter Ben Strack on stage Wednesday as part of a panel with Jake Rapaport, Nasdaq’s head of digital asset index research.



The Exchange conference will be a crypto conference within three years, said Dave Abner, global head of business development at crypto exchange and custodian Gemini.



“There’s not that much to talk about with 5 basis point S&amp;P 500 ETFs anymore,” he told Blockworks. “[Crypto] is the stuff that’s interesting. These are the guys that are sponsoring the conference; money’s flowing in that direction.”



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Crypto and TradFi Collide at Miami ETF Conference

Casey Wagner

<div id="highlights-block_621663856bc17" class="highlights">
 <ul>
 <li>Valkyrie Investments has launched a treasury management service for crypto companies looking to offload balance sheet responsibilities</li>
 <li>Its first client will be the NEM/Symbol protocols, which recently announced their merger </li>
 </ul>
 
</div>



Digital asset investment firm Valkyrie is out to help cryptocurrency companies manage their balance sheets.



Valkyrie has launched a protocol treasury management service that will help companies in the crypto space handle cash flow management, advanced reporting and other services, the company announced Wednesday.



“Treasury management becoming the norm is the natural evolution of a rapidly growing industry,” Leah Wald, CEO of Valkyrie Investments, said. “It was inevitable that someone would offer it, and we’re excited to be the first to do so.”



Companies in the blockchain space often work with funds in the hundreds of millions, Wald said, and offloading financial management tasks will be an ongoing trend as the space continues to grow.&nbsp;



“[Treasury management] enables founders and developers to work on what they do best, building and expanding, while outsourcing financial matters to experienced money managers,” Wald said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Projects who choose to work with a fiduciary to oversee their assets build even more trust with their communities, backers and outsiders because they bring a level of transparency and rigor to this process that others may not have considered.”&nbsp;</blockquote>



The first protocol to partner with Valkyrie on its treasury management offering is NEM/Symbol, two layer-1 protocols that announced their merger in 2021 with a $700 million token treasury. Treasury management has been a challenge for the NEM Protocol in the past, which is one of the reasons for the merger, according to <a href="https://www.coindesk.com/business/2022/01/28/wall-street-crypto-firm-valkyrie-is-holding-a-700m-protocol-treasury/" target="_blank" rel="noreferrer noopener">reports</a>. The NEM Foundation was just one month away from running out of funds when it was restructured according to a <a href="https://forum.nem.io/t/nem-foundation-message-to-the-community/21753" target="_blank" rel="noreferrer noopener">forum post</a> from January 2019.



“Throughout the course of our discussions with their core team, it became clear that they and many other founders and developers are spending far too much time worrying about managing money, and it takes away from their ability to effectively lead and expand at the pace they’d like,” Wald said.



The launch of the new service comes shortly after Valkyrie became the <a href="https://cms.blockworks.co/valkyries-btf-trades-10m-in-first-5-minutes/" target="_blank" rel="noreferrer noopener">second issuer</a> to list a futures-based bitcoin ETF in the US, which helped the company secure $1 billion in assets under management earlier this month.



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