Bitcoin ETFs are 'democratizing' crypto investing: Grayscale

Bitcoin (BTC-USD) and the general cryptocurrency space have seen a momentous rally in February, with the former peaking back above $60,000. After revitalized interest in digital assets following the Securities and Exchange Commission's (SEC) approval of spot bitcoin ETF offerings in January, Grayscale's Bitcoin Trust (GBTC) has seen outflows of nearly $8 billion over the past month.

Yahoo Finance's Madison Mills is joined by Grayscale Global Head of ETFs Dave LaValle on the floor of the New York Stock Exchange to talk about the spot bitcoin ETF landscape and the crypto asset manager's premium fees on its offering.

"We came to market with $28 billion in assets, and we had 100% market share, so for us to expect that we were going to maintain 100% market share really wasn't something that we were looking at, so the outflows that we have seen have been expected. we anticipated that," LaValle explains. "Look, we have a premium fee for a premium product, and so that's where we're standing right now."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

BRAD SMITH: Also, let's talk a little Bitcoin here, a little bit more on BTC-USD for you. But not all spot Bitcoin ETFs have had a good month. Grayscale spot Bitcoin ETF has seen nearly $8 billion worth of outflows in the past month according to farside investors. That's partially due to Grayscale having higher fees than its competitors.

To break down what's next for the ETF, we've got Dave LaValle Grayscale Global Head of ETFs, and Yahoo Finance's reporter Madison Mills at the New York Stock Exchange standing by. Hey, guys. Maddie, I'll toss it on over to you.

MADISON MILLS: Thanks so much, Brad. Dave, thank you so much for being here after ringing that opening bell. I know you've done it before. We just mentioned this record-breaking crypto rally. At the same time, you're having record breaking outflows to your ETF. Talk to me about the discrepancy there.

DAVE LAVALLE: Look, ETFs are about democratizing investing for investors. And this is really an opportunity to open up 30 trillion of advised assets to come into the asset class. So we're seeing lots of buyers come in, democratizing investing. And it's really about, you know, the demand profile increasing. And we're super excited about that.

MADISON MILLS: Talk to me about the profile of those investors that you're seeing coming in.

DAVE LAVALLE: So ETFs for a very long time, even if you go back 30 years to SPY coming to market, the first ETF in the US market, you know, we think of that as S&P 500, you know, market cap weighted exposure. It's pretty plain vanilla. But then it was an institutional class of investment. And it democratized the opportunity for every investor to have a real equitable experience to come into S&P 500 exposure.

Similarly, 30 years later, we're innovating with the ETF and bringing Bitcoin to market. Now, Bitcoin was really something that was followed by institutional investors but also by retail enthusiasts. But it really wasn't available to the advised market. It really wasn't available to financial advisors to put into clients' portfolios.

With the advent of the ETF, which is a wrapper that's well understood by the advised market and is something that's understood by wealth management platforms, it affords the opportunity for advisors to allocate to their client portfolios. And that's $30 trillion of advised wealth in the US market.

MADISON MILLS: And obviously, you have had record-breaking numbers in terms of assets under management. But we've seen that significantly dip due to those outflows more than any of the other spot Bitcoin ETFs on the market. Given that, have you considered lowering the fee?

DAVE LAVALLE: So we came to market with $28 billion in assets. And we had 100% market share. So for us to expect that we were gonna to maintain 100% market share really wasn't something that we were looking at. So the outflows that we have seen have been expected. We anticipated that. You know, look, we have a premium fee for a premium product. And so that's where we're standing right now.

MADISON MILLS: Have there been internal discussions about lowering the fee?

DAVE LAVALLE: We are always, you know, taking a look at our business model. But we feel very strong where we are right now, where the asset level is. And honestly, with this Bitcoin rally, we have demand profile. It's very strong. We have supply, you know, gonna be constrained coming up as we have the halving in about a month or so. We're really excited about the economics right now.

MADISON MILLS: How are you strategizing around that halving that you mentioned?

DAVE LAVALLE: Well, it's not really something that we're strategizing around because the halving is really built into the, you know, profile of how Bitcoin is built. And it's kind of coded into Bitcoin. So we're certainly aware of it.

Again, Grayscale is a crypto specialist. So we come to market with a really differentiated offering in the sense that this is all we do. And this is what we're really focused on. And so we can be that crypto specialist for the advisors and for our clients. And we're really ready to educate the market.

MADISON MILLS: In terms of educating the market, you are an ETFs guy, so I'm curious if you can talk to our audience of retail investors about how they should be thinking about in terms of the mental framework, how much crypto should be part of a diversified portfolio.

DAVE LAVALLE: So ETFs have long been building blocks for clients' portfolios and for advisors to utilize for clients' portfolios. On grayscale.com, we actually-- our research team has done a lot of work on what an allocation to Bitcoin might look like or digital assets.

And we found that up to a 5% allocation to Bitcoin is really where you kind of optimize that risk return profile for a traditional 60/40 portfolio. So obviously, it's not an investment advice, but-- and suitability for different investors and different risk tolerances. But, you know, take a look at the research. And it's something that I think from Sharpe ratio perspective and risk return perspective is pretty compelling.

MADISON MILLS: From a macro perspective, are there any concerns? I'm looking right now at Goolsbee talking about rates and inflation. To what extent do those macro concerns read through to crypto and Bitcoin beyond the rally that we're currently in?

DAVE LAVALLE: Yeah, Bitcoin can be different things to different investors. So some people might think of it as a currency. Others might think of it as an inflation hedge. Others might think of it as a digital store of value.

And others yet might think of it as a piece of transformative technology and nascent technology. So it depends on how your view of Bitcoin is. But it can be all of those things to all investors or different investors as well.

MADISON MILLS: I know that some of your investors who have stayed with you are really into Grayscale because they see you as beating the SEC when it comes to approval for the spot Bitcoin ETF. I know that coming up next, you're seeking approval for an Ethereum ETF. Talk to me about where we're at in that timeline. Do you have an anticipated rollout date for that?

DAVE LAVALLE: So we're in the process of applying for our Ethereum private placement that's currently trading on the OTC markets to be similarly to GBTC uplisted to the New York Stock Exchange. That review timeline expires in the June time frame. And we're, you know, eagerly anticipating the SEC's decision on that. And we'll be prepared to, you know, uplist if we get an approval.

MADISON MILLS: And let's end where we started. In terms of the assets under management and the outflows, is there a bottom number that you anticipate getting to when it comes to assets under management that would change your thinking on fees or change your thinking on a strategy for getting in more inflows?

DAVE LAVALLE: Well, we started at $28 billion on assets. And we're right now about $26 billion on assets. So there's been a crypto rally. We've had some outflows. That's what we've anticipated. We're very, very confident in our business model.

And being a crypto specialist, we have a 10-year track record. We're not going anywhere. This isn't a flash in the pan. We're super excited about the future of crypto and the future of digital assets for investors.

MADISON MILLS: And I know a lot of our audience is too, Dave. Thank you so much. We really appreciate it.