How to Capitalize on GBTC Discount, Grayscale's Head of ETFs Explains

  • David LaValle, a 20-year ETF veteran, has joined Grayscale Investments as the global head of ETFs. 
  • LaValle explains why he left his role as an index investing CEO for a crypto asset manager.
  • He also shares a potential buying opportunity as the Grayscale bitcoin trust remains at a discount.

It’s not every day that the chief executive officer of a firm that has over $23 billion in assets benchmarked to its indices leaves his job for a crypto asset manager, but David LaValle knows how to blaze a trail. 

A 20-year plus ETF veteran, LaValle, who most recently served as the CEO of Alerian and S-Network Global Indexes, has joined Grayscale Investments as a senior managing director and global head of ETFs. 

In this newly created role, LaValle will spearhead Grayscale’s efforts to convert its entire family of 15 investment products into ETFs. He will report directly to Grayscale CEO Michael Sonnenshein.

A spokesperson for Alerian confirmed LaValle’s departure but declined to comment further. 

LaValle said he first encountered crypto while overseeing Nasdaq’s ETP listing and trading businesses. From there, he joined ETF giant State Street Global Advisors as the US head of SPDR ETF capital markets. 

“I’ve been an active participant in the ETF ecosystem watching the evolution of the asset class and the maturation of the crypto ecosystem,” he said in an interview. “And now we’ve gotten to a place where it’s really not a question of if there’s going to be a bitcoin ETF, it’s just a question of when there’s going to be a bitcoin ETF.”

Roadmap to ETFs

Bitcoin ETF applications have mushroomed over the past year but they remain in limbo today as the Securities and Exchange Commission rejected some and delayed others. 

“Despite the fact that there isn’t a bitcoin ETF, it doesn’t mean there isn’t investor demand more broadly in the asset class,” LaValle said. “And we’ve been very public about supporting the conversion of the Grayscale bitcoin trust once regulators deem it acceptable to launch a bitcoin ETF.”

Indeed, Sonnenshein has said that the firm, which selected BNY Mellon as the asset servicing provider for its bitcoin trust three weeks ago, is “100% committed” to converting GBTC — the largest bitcoin trust with $25.9 billion in assets — into an ETF.

For now, all Grayscale products are launched as private placements before obtaining public quotations on the OTCQX market (the highest-quality tier of over-the-counter markets). The firm will then convert them into SEC reporting companies, as it has done for three products so far, before working to convert them into ETFs, pending SEC approval. 

Buying opportunity for retail traders 

Historically, the Grayscale bitcoin trust has traded at a premium to net asset value, which means that the price of GBTC exceeded the value of the bitcoin held by the trust. This has been primarily driven by popular investor demand for GBTC. 

With the approval of two bitcoin ETFs in Canada in February, GBTC’s premium has since reversed to a discount. Shares were trading at a 10.28% discount as of August 2. 

Crypto analysts have speculated that the GBTC discount could narrow as its ETF conversion nears. ETFs have an arbitrage mechanism embedded in the fund structure. A discount would present an enhanced buying opportunity for investors betting on bitcoin’s price surge going forward. 

“Given the creation and redemption structure embedded within the ETF, there is an opportunity for market participants to arbitrage the price of the funds,” LaValle said. “Yes, the discount will certainly collapse.”

As the discount narrows and the price converges with the underlying value of bitcoin itself, investors who bought into GBTC at a discount could pocket gains aside from the price appreciation. 

LaValle, who declined to give direct recommendations, shared his investing philosophy from the first decade of his career.

“I traded a very broad range of investment products during the first decade of my career,” he said. “Some traded premiums, some traded discounts. I’ve always viewed products trading at a discount to be a buying opportunity.”

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