Grayscale’s ready to go to war over its bitcoin ETF

The crypto investment company just hired veteran D.C. attorney Donald Verrilli to help its campaign to get approval from the SEC for its Grayscale Bitcoin Trust.

Grayscale CEO Michael Sonnenshein sitting down for an interview

CEO Michael Sonnenshein told Protocol he's assembled a "deep bench of in-house legal talent" to support Grayscale's bid to convert its Grayscale Bitcoin Trust into an ETF.

Photo: Bloomberg/Getty Images

Grayscale CEO Michael Sonnenshein has been focused on the crypto investment company’s bid to offer the first bitcoin spot exchange-traded fund in the market.

He hopes the SEC will approve its application to convert its Grayscale Bitcoin Trust into an ETF, even though the SEC hasn’t approved any bitcoin ETFs to date.

But Grayscale is prepared to go to court if the SEC gives it a thumbs-down. It’s bound to be a tough battle. And this week, Grayscale brought in more firepower.

Grayscale said Tuesday it had hired veteran attorney Donald Verrilli, who served as solicitor general during the Obama administration, as a legal strategist. Verrilli’s hire, Sonnenshein told Protocol, would “round out our legal bench.”

He elaborated on Grayscale’s preparations for a potential legal brawl in an interview with Protocol, in which he also talked about the push to regulate crypto and the recent volatility in the market.

This interview was edited for brevity and clarity.

You’ve said that it’s a matter of when, not if, the SEC will approve a bitcoin spot ETF. How close are we in seeing that?

I think it's really tough to put an exact frame on when that's going to transpire. That is really up to regulators to approve here in the U.S. In the case of GBTC — that’s the ticker symbol for our bitcoin product — it's already out in the market, and it's been trading every day since mid-2015. It's emerged as the largest bitcoin fund in the world.

At this juncture, we asked the regulators to pull the product even closer into the regulatory perimeter and give it greater investor protection. The opportunity in front of regulators is to really give investors fair and safer and more familiar access to bitcoin as an investment by approving an ETF. They're certainly not, you know, protecting anybody by not taking action.

You have been quoted that you may sue the SEC if they do not approve your proposal. Is that still the plan?

Our team has been preparing for all scenarios as we approach the July 6 deadline, at which point the SEC will either approve or disapprove the application. We are certainly operationally ready to convert GBTC to an ETF. But certainly, in the event of a disapproval order, one possible outcome is that we would file a lawsuit against the SEC.

Why did you hire Don Verrilli?

I think "preparedness" is exactly the word that I would use. When I think about the Grayscale legal team, we've built a deep bench of in-house legal talent. We've been working closely with our attorneys for many years to develop many of the arguments that have been put forward in front of the SEC. What better way to continue to round out our legal bench than to bring somebody like Don on as a legal strategist given his decades of experience both in the public sector, representing the government as a former solicitor general, as well as [his] work in the private sector. So we're thrilled that he's part of the game.

Can you elaborate on that? How do you expect him to help in conversation with regulators? What are you expecting?

Having been a public servant and having been on the government side of a variety of legal actions, Don certainly brings a unique perspective that perhaps the hundreds of members of our team have not had the same experience with professionally.

It's been a year since Gary Gensler took over the SEC. What kinds of conversations have you had with him and his team about crypto?

If you take a big step back and look at the potential that the SEC was perceived to have under the chair’s leadership given that he entered his seat at the commission with much more than a simple working knowledge of the asset class, you continue to see progress throughout the last year. [That] has certainly been encouraging. But I do feel that Washington as a whole is getting impatient with the lack of progress being made at the SEC around issues like spot bitcoin ETFs and others.

If you look at where we are, you have the backdrop of the White House executive order that has certainly changed the narrative in D.C. with respect to engaging on crypto issues. You have bipartisan support for a brand-new bill that directly addresses regulation and regulatory frameworks around crypto assets.

So the temperature in D.C. has certainly changed. I certainly believe that this is an opportune moment for the SEC chair and the agency as a whole to further engage on these issues and to fulfill that White House executive order, demonstrating American competitiveness and its adoption of new and emerging technologies like bitcoin.

Speaking of temperature, there is also the view we are in another crypto winter. We've just had a major stablecoin crash. How have these developments impacted Grayscale?

Certainly the narrative around Terra’s collapse was taken notice of. But it was a cycle that petered out over a matter of days.

I feel that the U.S. continues to push for stablecoin regulation and ensuring that these protocols are functioning as they're designed to do so.

In terms of a crypto winter, it would certainly be far too early to say that is in fact the case just because prices have sold off.


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