Grayscale Bitcoin Trust (BTC) (OTC: GBTC) Virtual Cryptocurrency Investor Conference May 19, 2022 9:45 AMm. ET
Participating companies
Craig Salm – General Counsel
Conference Call Participants
unidentified analyst
[The call begins abruptly] — from today’s convention with a verbal exchange by the fireplace with Craig Salm, general manager of Grayscale Investments.
Craig, thank you for joining us in our here.
craig salm
Thanks for having me, Bob.
unidentified analyst
It’s smart to have you. Before we start the conversation by the fireplace, I would like to introduce you to those 4 50 otCQX [technical difficulty] most productive, which recognize the 4 grayscale transmitters that have been included in the list of the 50 best OTCQX of 2022. The 50 most sensitive OTCQX annually The list of corporations recognizes the most productive active issuers in terms of overall return and average dollar volume growth.
The 4 grayscale issuers identified this year are Grayscale Bitcoin Trust, GBTC; Ethereum Trust in grayscale, ETHE; Ethereum Classic Trust in grayscale, ETCG; and Grayscale Digital Large Cap Fund, GDLC. I would like to present the plaque to you and come back. . .
craig salm
Okay, thank you very much, Bob, it’s a pleasure.
unidentified analyst
they gave it to me
craig salm
Shows to the public. So we moved our headquarters from New York to Stanford because of the pandemic, and a lot of that reasoning was to get more space for all the workers you hired. But we’re also very grateful for all those plates you gave us, Bob. that.
unidentified analyst
Well, that’s perfect. So, we’re pleased to see that. We are pleased to be profiled in this way. So, again, congratulations to you and the Grayscale team for having – named 4 problems.
craig salm
Yes.
unidentified analyst
That is great.
craig salm
Yes, I mean OTC Markets has been a wonderful couple for us over the years. So we appreciate it.
unidentified analyst
Yes, we feel the same way. Well, before we begin, for the audience, just a few issues to keep in mind. Submit your queries in the query box to the left of the slides. If you want to schedule a meeting with corporate management, click the Meetings tab located in the left navigation bar. You will be able to view the company’s availability and submit an appointment request. Finally, all of today’s presentations will be recorded and played back 24/7. Once back, we welcome Craig Salm, general counsel of Grayscale Investments, which owns and operates 14 other securities transactions in over-the-counter markets.
Craig, welcome.
craig salm
Thank you. Very well, start with the presentations to the audience and then we will move on to the verbal exchange through the fireside chat.
So hello everyone. As Bob mentioned, I am the General Counsel of Grayscale Investments. So, starting with the next slide, who is Grayscale?We are the largest virtual currency asset control company in the world. We currently manage approximately $20 billion through a family circle of 17 asset products. As Bob mentioned, 14 of them are recently traded on the OTC markets today. And our project is to provide access and exposure to the elegance of virtual currency assets in the form of a family security [rather] [Ph] for investors who need to access virtual assets, but for a number of reasons similar to convenience, familiarity, regulatory reasons cannot directly access currencies. But what they can do is invest in an investment vehicle that contains those assets.
Therefore, they are products available through your brokerage account, your compatible investment vehicles are accompanied by audited financial statements, tax returns; just make virtual assets very available. Normally, when you have an asset elegance that investors should be exposed to, you invest in a very familiar investment vehicle called an exchange-traded fund or ETF. But today, at least in the United States, this type of investment vehicle has not yet been approved by our regulators. So what Grayscale has designed is a four-tier product lifecycle, with the final tier being an ETF, but each initial step by making the products more available to more types of investors.
So, as you can see from this slide, our first phase is to launch a personal placement for our investment vehicles. And this offer is only offered to accredited investors at the beginning. And those investors have a one-year lock-in. Therefore, it is the most restrictive type of offer we can offer, at least initially. After this first personal placement offer, we have done something innovative, with OTC Markets, knowing that shares originally created in the personal placement can be traded freely after one year, we have developed a public market in the over-the-counter markets so that personal placement investors continue to hold their shares or sell them, not just to accredited investors, but also to other retail investors.
And most importantly, those buyers don’t have a holding period, so again, just think about being more available to more types of investors. And we can communicate about the five new products that were mentioned publicly recently this week. It is important to note that in the OTC markets, it has designed very powerful reporting criteria physically called Alternative Reporting Standards, however, there is another reporting point, called the SEC Reporting Standards. And so, this third phase is that we need to make our products public on the OTC SEC Reporting markets, and that means the products will then register 10-K, 10-Q, 8-K with the SEC.
And those reports are very similar to what we’re already doing in the OTC markets, but they’re under review through the SEC. So, this is very vital for many of our institutional and more regulated investors who want those kinds of robust and transparent reporting criteria. to access those products. The other thing that becomes SEC Reporting is to decrease this era of initial one-year holding in personal placement up to the public board to six months, so, again, more available to more types of investors. And then there, the fourth and final step is conversion to ETFs. This would amount to over-the-counter market directory products to a domestic inventory exchange.
So, this is a great event for OTC markets as it shows that those budgets can live as long as they are more regulated, only for occasionally a domestic stock exchange. And most importantly, as ETFs, those products will be able to be more profitable to track their underlying assets because it would have triggered anything, called an arbitrage mechanism, which is not the case today as an inventory indexed in OT. And so, this translates into the fact that products are traditionally traded at premiums or discounts to support the value of assets. . So this is a vital thing for anyone who accesses those products.
Let’s move on to the next slide, so what we’re seeing here is that of our 14 virtual asset investment vehicles, each is in other stages of its four-stage lifecycle. So today we have 3 budgets that are still just personal locations This is because they were only introduced last year and therefore do not have eligible stocks to be freely traded on OTC markets. But you may believe that the same would be done with nine of our products, or sorry, with 14 of our other products. we would do the same with those at some point in the future. Looking in this public directory column, nine of the 14 government products that we have that industry in the OTC markets have yet to be reported to the SEC.
Moving on to the third column, we see that today we have six products that are publicly traded on OTC markets, but also SEC reports. And then, in this fourth column, here’s what we think we’re going to do today with our flagship product, Grayscale Bitcoin Trust, symbol GBTC, taking it to this fourth and final stage.
Let’s move on to the next slide, so one of the things that’s been really appealing over the years is that a lot of grayscale asset managers and other virtual currencies have started to see how virtual assets, taken together, allow investors to diversify. your portfolio of stocks, bonds, commodities, currencies, etc. But what we’ve noticed over the years is that investors diversify even within the elegance of virtual currency assets as more and more sectors begin to emerge. So what this slide shows here is that of our 11 single-asset investment vehicles, we have other topics that each of those products provides exposure to investors.
Therefore, one category is privacy. Thinking of assets, such as Bitcoin, which is a form of virtual gold, and assets such as Ethereum, which allows for more complex types of transactions, none of them have inherent privacy-preserving characteristics. And that translates into public visual transactions. And it can create disruption for other types of users and market players. Therefore, other protocols have begun to expand this layer over greater privacy in transactions. So, we have, for example, a product called Grayscale Zcash Trust, which is based on privacy. generation in addition to the generation of Bitcoin to allow personal transactions.
We have another product called Grayscale Horizen Trust which is similar to Ethereum in that it allows for more complex general target transaction types. But like the layers of Zcash in some of those privacy-preserving features. , Grayscale Basic Attention Token Trust allows Internet browsing and media use, but in fact preserves the importance of privacy. Some of the other sectors we see are smart contract platforms. I discussed Ethereum, it was the first smart contract platform down, allowing all those decentralized programs to grow.
But we’ve noticed competition coming in. That is why we call this sector, in a broad sense, Smart Contract Platforms. And we recently launched, in our personal placement phase, an ex-Ethereum Smart Contract Platform fund, which allows the latter to diversify among other types of Ethereum competition. Some of the other issues we see are data. So it’s vital that you have a large chunk of the core infrastructure that other people might not think of when employing virtual assets or those applications. But in the same way, you want computing, cloud, and log storage. Well, this will also have to exist in a decentralized world. So, we have tokens like Filecoin, Chainlink, and Livepeer that enable this kind of vital structure from the infrastructure.
Some other categories are paid. So, I discussed that Bitcoin has established itself as the trendy virtual gold. But, you don’t use gold to buy a cup of coffee. Then you have other assets like Bitcoin Cash and when more minimal exchange use cases can be used. I talked about the price of Bitcoin, and then the Metaverse. So this is the sector that has started to get exciting over the last year. We have corporations like Facebook, now Meta is getting into it. And so, there are several protocols that have evolved in virtual worlds. One of them is Decentral, and for which we had a product. This week too has been publicly cited. Those are our monoactive products.
Moving on to the next slide, here is a list of our various products. So, those are investment cars that don’t have a single virtual currency, but a basket of virtual currencies that highlight the sectors I mentioned. So, for example, a few years ago, we introduced our large-cap digital background in grayscale, which looks like an S-type.
Let’s move on to the next slide, yes, so it’s a summary of Grayscale as an asset control company, a summary of our product offerings. What we are doing as a company is allowing investors to be part of this long term that we believe is vital within the asset ecosystem.
So that’s the presentation. Should we start the verbal exchange through fire, Bob?
unidentified analyst
Yes, we should. We’re going to do that.
craig salm
Right.
Q&A session
Q – Unidentified Analyst
Well, thank you for that wonderful summary. We have noticed that several queries arise. So why not start with consultations? I see the first query is: Can you tell us about recent announcements related to grayscale products?
craig salm
So, I commented that we have this four-stage product lifecycle where each step makes products more available to more types of investors. A few weeks ago, we started bringing our Grayscale Horizon Trust, which is HZEN, H-Z-E-N, to the OTC markets. Our Grayscale Stellar Lumen Trust, which is GXLM in the OTC markets. And our Grayscale Zcash Trust, which is ZCSH in the OTC markets of this publicly indexed phase, there is not yet a PUBLICLY indexed SEC report at this stage and an SEC report.
So what this implies is that we’ve filed anything called Form 10 with the SEC, which is the registry that records securities under the Exchange Act and subjects them to SEC reporting standards. So, those are things like 10-K, 10-Q, 8-K, etc. It is vital to know that this is a step that we are voluntarily taking with the SEC because we believe it is vital for our investors to see that we are doing everything we can to make our products more regulated by subjecting them to stricter reporting standards, which is very vital for the average investor who needs to access virtual assets, but in this very familiar transparent investment vehicle package. So that’s what we’ve achieved by looking to make our products 3rd step. The other really vital announcement is that we have secured a public quote for five of our products that in the past were only in the personal placement stage. Therefore, they cannot be obtained for government procurement in OTC markets.
unidentified analyst
Congratulations on that.
craig salm
Thank you so much. [Multiple speakers]
No, that verbal exchange by the fireplace was going very well. This includes our Basic Attention Token Trust whose ticker symbol is G-B-A-T G-BAT, our Grayscale Chainlink Trust with the ticker symbol G-L-N-K, our Grayscale Decentraland Trust which has the ticker symbol M-A-N-A or MANA, our Grayscale Firecoin Trust which has the symbol G-F-I-L GFIL. And then our Grayscale Livepeer Trust which has the G-L-I-V GLIV. So this is vital because, again, it makes those products more available to the retail investor, which is a vital step for us. Therefore, it is the filing of Form 10, the third phase of obtaining public quotations at this stage at the moment, of which the OTC market is a key axis there. And so, as I mentioned, he has been a wonderful spouse to us for so many years.
unidentified analyst
Great. Well, let’s move on to the next question. See. How does the OTC market support the life cycle of grayscale products?
craig salm
So come back. But it’s actually vital how critical the OTC market is to this stage at the moment, which is the first time it has not only credit investors who can only invest in personal placements, but also retail investors who can access those products in the public markets through their brokerage accounts. Then you can move on to Schwab, E*TRADE, Fidelity what you have and write down the inventory symbols and see the products there to buy and sell. Current budget, not necessarily the industry is based on our net asset price. And in fact, historically, we’ve noticed that the product industry has discounted net asset price premiums. Therefore, it is vital that anyone knows, when accessing those products, to know where those premiums and discounts are quoted and to be aware of it if you invest in the products.
unidentified analyst
Good, good.
craig salm
And this is one of the reasons why, for us as a company, it is so vital to get this fourth and final step of conversion into ETFs, because it would allow market participants called legal participants to create shares when there are premiums to charge. be offering and reducing that premium, or on the contrary, buy back shares as when there are discounts to withdraw shares from being offering and accumulating this discount. Therefore, we believe it is vital for investors because it will further optimize products to invest in virtual currencies through those structured investment vehicles.
unidentified analyst
I get it, okay. After the questions, what kind of licenses and designations do you want at Grayscale?Is there anything exclusive here for classic finance or other crypto companies?
craig salm
So one of the unique things beyond the full virtual asset component of what is a very new and exciting generation and industry, is the fact that those products go through this lifecycle that uses various types of SEC regulations and regulations. Therefore, from this first phase of personal placement, this offering is not registered with the SEC, which would allow it to be available to retail investors from the beginning without a blocking era. Instead, it is a registration exemption that is Reg D Rule 506 ©. And so, this is a vital rule to keep in mind. And that’s why stocks are, first of all, just for lending to investors. And those investors have this one-year lockdown era. After this era of blockade under the so-called Rule 144, shares are bought first. as part of the personal placement and then sold through investors through Rule 144.
But most importantly, just because you can sell inventory doesn’t mean you can locate someone who buys it for you. And that’s where over-the-counter markets come in by creating that market for inventories. And the so-called 15c2 -11 rule is what allows agents in the OTC markets to demonstrate the quotes of those securities so that buyers and traders can trade with each other. So, this is the 15C-211 rule.
unidentified analyst
Right.
craig salm
It is important to note that, just like just over a year ago, FINRA legalized compliance with this rule and therefore authorized public quotations. However, this rule was replaced through FINRA last year. Now, the OTC market has a vital duty to be able to determine compliance as well. So I think it’s a big step for all of you. So, this is the 15v2-11 rule. This third step in adjusting an SEC report is to file a Form 10, as mentioned. And what it does is sign the securities under the Stock Exchange Law which subjects them to 10-K and 10-Q as I mentioned. And then, this fourth and final step, there are some other deposits that you want to make. There is something called 19b-4 that is a security for a National Stock Exchange. This is also the rule that allows any new security for the industry on the National Stock Exchange. also. That’s it, 19b-4.
There is an S1 or an S3 depending on the notoriety of security. This only records securities under the Securities Act. So, this means that all newly created stocks can be traded freely and without delay among all types of investors. And then the third document is something called a Reg M letter of support that allows simultaneous creations under an S1 or S3, as well as redemptions. And that’s vital because it allows this arbitrage mechanism through legal participants to be used to create when there are bonuses or give when there are discounts and allow any assurance to the industry at that tight net asset value.
unidentified analyst
Let’s move on to the next question. What is your position regarding GBTC’s conversion efforts?What were the recent conversations with the SEC like?
craig salm
Therefore, the conversion of GBTC to ETF is in the fourth stage. Last year, in October, we filed this 19th before the document I mentioned, which is what you can think about applying for approval of an ETF with the SEC. This initiated a 240-day Review Period, where the SEC invites joint letters from the public, expressing why the SEC deserves or does not deserve to approve, in our case, this conversion of the GBTC ETF. So, knowing that this is a very vital procedure for our regulators, we introduced a crusade to really activate our investor base, letting them know that they can be part of this procedure. And so, GBTC today accounts for around $20 billion in AUM. And that’s about 850,000 investors in all 50 states.
unidentified analyst
This is one of our maximum traded values.
craig salm
Àdroite. Il trades heaps of millions of dollars in daily transaction volume on OTCQX. And it was vital to us that our investors knew that they can be part of that procedure. So we created a website, grayscale. com/comment, that explains what the application procedure is, what the issues are, how vital it is, and allows anyone who gets there seamlessly to click a button, there’s a kind of letter template that they can upload or send as is. And that’s happening to the SEC, and that’s one of the letters they’re looking for as a component of that procedure. And so, to date, if you go to the SEC’s website, there are just over 5,000 letters that have been sent. And as far as open joint letter periods are concerned, it is quite remarkable. And if you go through those letters, there are 3 non-unusual themes that we’ve noticed emerging. One is not unusual for our existing investors, namely that they are already in this GBTC product.
But today, because it trades at a downgrade, there is a dollar price that is hidden from those investors, because it has not been allowed to convert it into ETFs. So, those investors say, hey, SEC, one of your missions is me, the investor, how do you do that by not allowing this product, which I’m already in, to be switched to an ETF, knowing that it would lessen that reduction and return the price to investors?
That’s a transparent and consistent argument from the existing investor base. Another argument we see is about america’s competitiveness. And that’s important, especially in the wake of this White House executive order a few months ago on guilty innovation within the virtual asset. ecosystem. So, the fact is, what better way, then, to keep America more competitive within the virtual asset ecosystem and bring more regulation than by passing a Bitcoin ETF, which would only bring Bitcoin more into the regulatory perimeter.
So today you have GBTC, trading in the OTC markets is an SEC report. We’re just looking to make it more regulated. And that’s literally vital from the perspective of a U. S. festival. USA And then the third argument we see is that, last October, the SEC actually approved the first non-spot Bitcoin ETF that contains genuine Bitcoin, like what GBTC does, but a Bitcoin futures ETF. And this was a vital step as it provides more access and exposure to Bitcoin for investors. But most importantly, if you go back to the history of those Bitcoin ETF programs and see what the SEC’s concerns have been, you’ve literally been around the underlying one. Bitcoin markets and concern about things like fraud or manipulation. But this is a concern that would affect both the spot-based Bitcoin ETF and a futures-based Bitcoin ETF.
So how do you agree with one and not the other?And that’s the kind of logical argument that many of those letters make. And we also discussed this argument with our attorneys at Davis Polk and sent some letters to the SEC about it. And the crux of that legal argument is under anything called the Administrative Procedure Act, and the Exchange Act, the Administrative Procedure Act or APA is what you know governs, how regulators govern. And one of the things that is said is that if you have to like situations, in this case, a spot-based Bitcoin ETF and a futures-based Bitcoin ETF and they are situated in the same way, you should treat them the same way.
Otherwise, you act arbitrarily and capriciously. Therefore, we argue that the approval of futures and not spot contracts is arbitrary. And then, under the Exchange Law, you can’t discriminate against opposing issuers. So, those are the two main arguments that are put forward, anything that also stands out. in those non-unusual letters. Yes, then it is an open period of joint letters, July 6 is our deadline. In the meantime, keep seeing the letters coming in, interact with the SEC, and have problems with them.
unidentified analyst
They gave it to me Thank you. Hey, let’s move on to the next question. Walking away, how would you paint a picture of the regulatory landscape?And what are the main actors to take into account, which are the main ones, what are the main dangers?from the regulator’s point of view?
craig salm
Yes, then it is vital. This is a vital question. I have discussed many of those regulations and regulations that are vital to Grayscale’s business as we navigate the regulatory landscape in the absence of an approved ETF product. This is also vital because in virtual assets, it’s a global industry, through nature, you have those assets that can be used through anyone with a web connection. And, unlike other asset classes, they don’t just trade on an exchange or market. They trade on many exchanges and markets with many other trading pairs.
So, thinking about how regulation works is vital, whether it’s locally or globally. The other explanation for why it’s a smart query is and isn’t an [indistinguishable] query that everyone knows. But the other explanation for why it’s a vital factor is that the U. S. UU. es exclusive in the sense that it does not have a single monetary regulator, it has several, depending on the use case or the specific assets.
So we have the SEC, which regulates securities. And so, from our point of view, they regulate our investment vehicles, because we have virtual assets that we believe are not securities, the shares we offer to our investors are in fact securities. , has the CFTC that regulates commodity futures. So, it regulates a lot of those assets that we think are commodities. Today, there are some exchanges regulated through the CFTC that offer Bitcoin futures and Ethereum futures. And so, those are the assets that this regulator lately clearly regulates, you have the OCC which is a banking regulator, you have the Treasury that regulates cash. And so, thinking about money laundering and sanctions evasion and things like that, you have the IRS, which cares about other people paying their taxes on the profits of virtual assets, which are assets.
So, all this to say that it is vital to be aware of what other regulators say about the elegance of assets. And also to make sure we meet with those other people within those regulatory agencies and make sure they perceive how the elegance of the assets works. Where are the benefits?And how they deserve to be thought about. I also talked about this year’s White House executive order, which was a vital milestone for our industry, because the president of the United States said he was looking for a consistent policy around this elegance of assets so that we can remain competitive and remain the leader. , the way the United States had previous versions of the Internet, Internet 2. 0 and Internet 1. 0 and that was also vital, because since you have all those other agencies, having this team spirit between them and proposing a single policy is vital.
So right now, they’re conducting studies and they’re going back and reporting to the White House on their findings and how they can balance, allowing the benefits of cryptocurrencies to live on in the United States, while protecting against the dangers for investors, consumers, etc. are sufficiently protected.
unidentified analyst
I get it, okay. Let’s take a look at the next question. Why would it be advantageous for me to buy those coins on an ETF than simply buying them on a crypto platform?
craig salm
Yes, I think it depends on the selection of the investor. At one end of the spectrum, you will have a user who is very familiar with the technology, who possibly does not have a brokerage account, does not want to have one, it is quite comfortable to go to a trading platform, either in the US. In the U. S. or elsewhere, depositing your cash there, buying a coin, they possibly have their own self-service custody wallet, which they are comfortable and then withdraw and stay themselves and be their own bank. And that’s important, because that’s one of the promises of virtual assets, this sovereign ability to be the custodian of your own assets.
At the other end of the spectrum, you’ll have someone who needs nothing to do with it, because it’s unfamiliar, scary. Maybe it’s an establishment and governs documents or regulators don’t allow them to access an asset that way, whether it’s coins, stocks, or anything else. So, they need that ETF wrapper that would come with things like pensions, or settlements or retirement accounts. So, there’s a broad spectrum there. And from our point of view, it’s a matter of choice. It’s smart that making an investment directly in currencies is more accessible. your demographic profile.
unidentified analyst
they gave it to me Well. Well, the next consultation is coming. Historically, GBTC traded at a reduction in underlying assets. Is this still the case and what are the catalysts to decrease this reduction?
craig salm
Well, as I mentioned, because those products are not ETFs, they tend to trade more like a closed-end fund when they’re traded in OTC markets, because when there are premiums, with an ETF where there are market participants that can create store them and industrialize them and sell them on the market and reduce that supply. There is this gap between personal placement and public rotation. That’s a six-month delay for products reporting to the SEC. And therefore a one year delay for products that are not reported through the SEC.
So even if you need to create more shares, when there’s a premium, it probably wouldn’t necessarily align, you have that disconnect. Conversely, since we are not an ETF today, for any of our products we have no refunds. And so, when there are discounts, there are no market participants who can jump in and buy back shares. And most importantly, all of those products have been designed to eventually become ETFs when the regulatory environment allows. And so, from our point of view, the most productive way to reduce or decrease the discount, the same with premiums if they exist, is to convert them into ETFs.
unidentified analyst
I get it, okay. Which makes sense. Next question. Does Grayscale own the real Bitcoin and other currencies included in the ETF for the long term?
craig salm
Therefore, in our products, all portions are kept in a bloodless room at our distributor. And those products are complete. So the investor who owns shares in those products owns the currency through his shares, it’s not, it’s not anything that Grayscale owns, it’s what our shareholders own.
To be clear, in futures products, Grayscale does not trade any products that contain futures or derivatives of those assets, we have the real currencies. Therefore, our custodian owns the personal keys directly connected to those underlying assets. But with futures-based products, they are, as I perceive, stay in that budget and constitute the assets of their shareholders, however, this is not a product that we have today, we know that the most effective way to invest in this asset is directly in currencies. , because it has no more prices similar to futures.
There is something called rollover charges, that is, those long-term contracts are not indefinite. So, unlike having a coin, you can put it in a shop without bloodshed and leave it there and constitute your investment in perpetuity. With long-term contracts, they are only for a certain era of time. So, each and every month you have to sell the long term you have and buy the following month. And if the long term of the next month is valued more than your current month, then you are necessarily buying low and selling high. And that’s called continuous charge. And within cryptocurrencies, traditionally speaking, there has been an ongoing charge to the extent that the following month’s long-term contracts are valued higher. So, it adds up over time, it’s essentially like vaporizing your investment, which you wouldn’t have in a spot ETF like what GBTC would be.
unidentified analyst
They gave it to me, okay. Good questions are coming. Next, do you implement policies in any of your trusts?
craig salm
Yes, then those trusts are purely passive, in the long run, there is no coverage, no loan, no remortgium. They are safe in a room without bloodshed with our caregiver. And then the stocks you have constitute that, the coins. The only expenses we have are the sponsor fees we accrue. But other than that, those are just coins that remain with our custodian that constitute the personal keys that are the assets.
unidentified analyst
I get it, okay. What has been GBTC’s pricing proposition over the years?
craig salm
Yes, I actually think it’s the profitability and convenience of making an investment in the case of GBTC Bitcoin through a security wrapper, so you can access it from your brokerage account. We produce audited monetary statements, tax data returns, we are the most productive service providers of their kind, and this allows you to invest in virtual assets along with the rest of your portfolio. So, we think it’s really vital for a lot of investors, whether it’s regulated, institutional, retirement accounts, they’re actually all looking for that convenience and convenience.
unidentified analyst
Wasn’t GBTC one of the 4 problems that made the OTCQX Best 50 this year?
craig salm
Yes, and GBTC is the maximum liquid inventory in all OTC markets on a daily basis, with ETHE or Ethereum Trust, Ethereum Classic or ETCG or Ethereum Classic Trust, and then GDLC, which is our large-cap fund, which is a smart way for investors who need to access virtual assets, but who don’t necessarily know if it will be Bitcoin or Ethereum or anything else, it’s the winner. They don’t need to pick the winners, they just need a more varied exposure. And so, GDLC is a very clever way to express this point of view through a single investment.
unidentified analyst
I understood, yes, it makes sense. Do you have securities that invest in a basket of crypto securities rather than exclusive currencies?
craig salm
Absolutely yes. So I talked about GDLC, our large-cap fund. We also have two others that offer exposure to other sectors of the virtual asset ecosystem. So we have an Ex Ethereum Smart Contract Platform Fund, so those are the protocols that look like Ethereum still. decide on other commitments to allow for more scalability, more speed, more security, or easier development. So, this contains tokens like Solana or Avalanche or Cardano. And then we have decentralized finance or a DeFi fund that supports the lifestyles of those more classic monetary in addition to those wise contractual protocols.
So things like decentralized exchange. This allows users to trade assets without an intermediary, such as an OTC market, for example. And we think it’s vital because it is: one of the promises of virtual assets is to eliminate some of the middlemen that investors are comfortable without. But again, in the same way that investors or users are easy to get directly or those who need this intermediate and classic structure, the same exists in crypto, where investors may need to make a decentralized exchange or move to an OTC market, for example.
It’s vital to note that those two budgets I mentioned, Smart Contract Fund Ex Ethereum and Decentralized Finance, or DeFi Fund, were only introduced last year, so they’re not yet in the OTC markets. Therefore, only accredited investors are available. But in fact we would seek, at some point, to get public quotes for those products, as we do for our other 14 products.
unidentified analyst
To the right.
craig salm
Yes.
unidentified analyst
Well, next question, when or what causes a mechanism when you accept as true with purchases of more shares?
craig salm
Yes, so that’s a smart question. Currently, since those products are not ETFs, additional stocks are only presented as a component of this personal placement.
unidentified analyst
okay.
craig salm
So, for example, if an investor invested, for example, a million dollars in our Bitcoin Trust, what they would do would be move us a million dollars, then we would take out and through a million dollars of genuine Bitcoin, we would send the Bitcoins. to our custodian, and then factor shares for the investor representing that $1 million from the Bitcoin Trust. This is the only time when new actions would be created.
unidentified analyst
they gave it to me
craig salm
And for every part, there is genuine Bitcoin for that action, just as there are genuine coins in the stocks of all our products.
unidentified analyst
Good, good. Well, next question, how would you deal with a 100% failing currency, like LUNA, and if that happened to AVAX, how would the ETF protect itself from that?
craig salm
So I think it’s, for anyone in the audience who doesn’t know what Terra is, I discussed that there are sectors in crypto. There are currencies, there are decentralized finance, there are wise contracts, there are games and the Metaverse. Another internal sector of this is that of the so-called stablecoins. What stablecoins seek to do is stick to an underlying benchmark rate. For many of them, what they are looking to do is stick to the course of the US dollar. And in this stablecoin business, you also have a number of other tactics to do so. In this spectrum, there are more experiences and more risks.
At one end, it has solid coins, where for each unit of the solid currency, there is a dollar or a cash-like tool in an account somewhere that supports that token. So, you have solid coins, like the USDC, that for each and every token there is a dollar or something similar in an account somewhere.
unidentified analyst
Right.
craig salm
Going further down the spectrum, you have a token, like Tether, that possibly has no dollars, but other tools relatively secure than tokens. money tools, but instead they are subsidized through other virtual assets. Therefore, it can also be Bitcoin or Ethereum. They are usually over-guaranteed to mitigate the volatility inherent in the virtual asset ecosystem. So, there are tokens, like DIE, that are in the MakerDAO protocol, this is an example of this crypto-guaranteed stablecoin.
unidentified analyst
Right.
craig salm
Going down further, you have solid coins that might not be subsidized through anything, and instead, you use algorithmic changes to create more coins when there are coins that are trading above a dollar, you know, as a premium, as I discussed, or destroy tokens when trading below a dollar. And, in fact, it is the maximum experimental end of the spectrum, and the most risky. This token discussed in the query is a protocol, called Terra, that had a token, called UST, which was intterminated to be the solidcoin. And then another currency, called Terra, which got involved in the algorithmic changes that necessarily failed last week and caused the value to collapse. So first of all, I would say that it’s vital for any investor to know that within the asset class, there is a total diversity of other types of use cases.
unidentified analyst
Right.
craig salm
And there are some that are relatively safer, and then there are some that are much riskier. And it’s actually vital that investors know that. With any investment vehicle That Grayscale can offer, we are always very transparent to investors that this elegance of assets carries risk. It will need to be seen as a new generation and can therefore go through this volatility. Many of our investors are actually betting on the long term and are therefore able to cope with this daily or weekly volatility. So the rest of the question is how the ETF works.
Yes, then, those. . .
unidentified analyst
Protect.
craig salm
They don’t do anything by themselves as opposed to the price. All they do is track the underlying asset.
unidentified analyst
Right.
craig salm
So if you invest in an ETF that has a currency that collapses to 100%, that ETF will collapse to 100%. So, investors want to know what they’re getting into with one of those investments.
unidentified analyst
Good, good. I think we have time for another question, maybe two. On the stablecoin note, can you know what happened to LUNA?What happened to LUNA?
craig salm
Yes, I mentioned how the stablecoin token in this protocol, UST, if it ever trades at $1. 00, market players will go out and create more UST, and so they will go higher to the source to decrease this premium.
unidentified analyst
Right.
craig salm
Conversely, if it were traded below $1. 00, market participants would buy the UST and buy it back. Well, what do you use to create UST and what do you get when you destroy a UST?This is where the LUNA token came into play.
unidentified analyst
okay.
craig salm
And for that underlying token to be priced, there will have to be some utility. For a long time, there was its usefulness. You know, you were able to take advantage of it, and other people were exchanging it, and they saw that it can be a very smart way to create a stablecoin. But in some situations, you might have a lot of pressure on those guys. of instances of use where their price is tested. We are now in an environment where, on a global macroeconomic level, you have many assets that are wasting price due to inflation, emerging interest rates, etc. So, all cryptocurrencies know it.
The same thing happened with this Terra protocol, and I think a lot of that put pressure on that mechanism, and in the end resulted in the failure of this mechanism to create or buy back the UST.
unidentified analyst
I get it, okay. Okay, we have time for the one that’s – well, we’re finishing. I see what time it is. And again, thank you for visiting us here.
craig salm
Yes, it’s wonderful to come here.
unidentified analyst
We enjoyed the presentation.
craig salm
Yes, thanks.
unidentified analyst
And appreciate our appointment with Grayscale.
craig salm
Yes, as I said, OTC Markets has been a wonderful couple for us over the years. So we appreciate everything.
unidentified analyst
Fantastic, thank you.
craig salm
Nice.
unidentified analyst
it’s having you.