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Just as cryptocurrency fans are expecting the first regulatory approvals of exchange-traded funds that hold Bitcoins, the sponsor of the Grayscale Bitcoin Trust said that its chairman will resign.

Barry Silbert will step down Jan. 1 from the board that he chaired at Grayscale Investments LLC. Also resigning from the board is Mark Murphy, the chief operating officer of Digital Currency Group, the blockchain enterprise that Silbert founded and leads.

The announcement said that their places on the Trusts board will be taken by other executives from the Digital Currency Group. Chief Financial Officer Mark Shifke will become chairman. Matt Kummell, vice president of operations, will join the board, as will Grayscale Investments financial chief Edward McGee.

It wasnt clear whether the board changes are related to the Grayscale trusts effort to win the U.S. Securities and Exchange Commissions approval to convert to an ETF that buys crypto tokens on the spot market. After a federal appeals court overturned the SECs rejection of that plan, the agency decided not to appeal the courts ruling. Investors have bid up the price of tokens such as Bitcoin this year, in the expectation that the SEC will approve ETF applications from Grayscale and rivals such as BlackRock .

Barrons called Grayscale Investments about Silberts resignation, but got no immediate answer.

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Despite the board shuffling, the executives remain unchanged at the trusts sponsor Grayscale investments. Michael Sonnenshein continues as its chief executive. He has been making changes in the fee structure of the trust, in anticipation of an ETF conversion.

As long as their executive management is staying, it doesnt bother me, said Michael Legg, an analyst at Benchmark who follows several crypto stocks, but not Grayscale. He is optimistic that SEC approval of spot ETFs will benefit Bitcoin miners such as CleanSpark.

Silberts leaving the board may reduce distractions for everyone. His Digital Currency Group has been defending litigation filed against its crypto ventures. In January, the SEC sued its Genesis Global Capital exchange, alleging that it sold unregistered securities. Genesis has filed a motion to dismiss the suit, but U.S. District Court judge Edgardo Ramos of the Southern District of New York is allowing discovery to continue while he decides on the motion.

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Write to Bill Alpert at william.alpert@barrons.com

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Chairman Leaves Grayscale Bitcoin Trusts Sponsor as Investors Await Call on ETF - Barron's

As the crypto market holds its breath, waiting for the SECs approval of Bitcoin ETFs early next year, the worlds largest asset managers cash in through their existing blockchain and crypto-related exchange-traded funds (ETFs).

Yet the manner and timing in which they take profits send confusing signals to the crypto community about the volatility of Bitcoins price.

The close of 2023 was relatively successful for the cryptocurrency market, whose capitalization more than doubled, and for the largest ETFs focused around it. All of their annual return rates have risen by double digits at least.

Cathie Woods ARK Next Generation Internet ETF (ARKW), famous for its active investments in disruptive innovation companies, made a 67.5% return this year, recovering after a 67% dive in 2022.

BlackRocks Blockchain and Tech ETF surpassed the 69% total return rate at the end of November. ETFs managed by Fidelity and Bitwise witnessed a similar growth rate, while VanEcks Digital Transformation ETF calculated even higher 98.25% annual returns.

One of the key reasons behind such growth was an incredible rally of crypto-related stocks. Shares of Coinbase, Grayscale Bitcoin Trust, MicroStrategy, and Marathon Digital soared over 300%, outperforming Bitcoins 150% growth. Consequently, investment funds that track price indexes of crypto-related companies bounced back after a brutal 2022.

In such an optimistic crypto market landscape, crypto-related ETFs reshuffle their portfolios and make moves that send mixed signals to retail investors.

Ark Invest, an asset manager behind one of the worlds most actively traded and closely followed crypto ETFs, made the most turbulence recently after heavily offloading Coinbase Global (COIN) and Grayscale Bitcoin Trust (GBTC) shares.

The Florida-based fund sold roughly over $270 million worth of Coinbase shares in December and more than 588,000 shares since June, when Cathie Woods fund changed the direction and decreased Coinbases weight on its portfolio regularly.

Despite the selloff, Coinbase shares still make up the majority (11.78%) of the ARKW Funds portfolio, ahead of Block Inc (8.57%) and Robinhood Markets Inc (4.86%). ARK Next Generation Internet ETF increased COIN shares in its portfolio by more than 7.2% since the end of 2022, managing over 1.153 million shares worth over $279 million.

Although Wood explained the sale of Coinbase shares as a portfolio rebalancing, the ETF likely cashed in by selling a part of its Coinbase shares, which have more than quadrupled in value since the beginning of the year.

A similar explanation could be addressed to ARK Invests total liquidation of its Grayscale Bitcoin Trust (GBTC) holdings.

The latter saw a massive, almost $2.5 billion, inflow earlier this year when numerous funds bought GBTC shares at a discount in anticipation of the Grayscales Trust transition to a Bitcoin ETF.

Ark Invest isnt the only asset manager where Coinbase holds significant sway. Fidelity, a major player in the United States, saw a 5.14% uptick in its Coinbase portfolio within the Crypto Industry and Digital Payments ETF (FDIG) this year.

Coinbase Global shares take the lead in the funds portfolio, making the largest portion at 21.6% and surpassing those of crypto mining giants Marathon Digital (9.25%) and Riot Platforms (8.93%).

Marathon Digital (MARA) was also on the radar of BlackRock, one of the worlds largest investment management firms.

In December alone, BlackRocks iShares Blockchain and Tech ETF (IBLC) boosted its MARA holdings by 6.48%, now constituting the largest share in the portfolio at 17.42%. Since the years start, BlackRock has significantly increased its MARA holdings by 9.86%.

The VanEck Digital Transformation ETF (DAPP) also turned its attention to Bitcoin miners, making Marathon Digital (8.44%) a key asset in its investment portfolio.

The fund, tracking 22 stocks related to crypto and blockchain and generating one of the highest returns this year, made MARA their priority asset after selling 4.01% of its Coinbase shares.

Bitwise Crypto Industry Innovators ETF (BITQ), which tracks a stock price index of crypto-related companies and manages a 29-asset portfolio worth $167.4 million, shows similar tendencies: Mara holding goes up (14.72%), while Coinbase Global declines (8.99).

Despite major asset managers expressing confidence in crypto mining companies, their Coinbase and Grayscale Bitcoin Trust share selloffs send mixed signals to the broader crypto community.

Almost all major asset managers, like Ark Invest, BlackRock, Bitwise, Fidelity, VanEck, Valkyrie, Galaxy, and others, have submitted their own applications for spot Bitcoin ETFs with the US Securities and Exchange Commission (SEC).

With SEC decisions expected to be announced within the first quarter of 2024, the crypto market worries that ETF approvals would be sell the news events that pull Bitcoins price down, at least for the short term.

On the other hand, the crypto community fears that the approval of Grayscale Bitcoin Trust to transform into a spot Bitcoin ETF could result in significant outflows from the crypto market, consequently pushing Bitcoins price down further.

GBTC manages assets exceeding $26 billion and has applied for its Grayscale Bitcoin Trust to be converted into an ETF.

Crypto market participants are concerned investors of over $2.5 billion in discounted GBTC may take profits ahead of the anticipated SEC ETF approval.

Not to mention that the insolvent crypto exchange FTX owns a sizable holding of around $417 million of Grayscales Bitcoin Trust, and its current management plans to return funds to creditors in fiat currency rather than in digital assets.

Finally, the nuances of asset managers inner policies raise additional concerns ahead of their expected sport ETF approvals.

Earlier this month, BlackRock, the worlds biggest investment firm with $9 trillion in assets under management, agreed with the SECs key condition and preferred method of fiat currency redemptions for its spot Bitcoin ETF.

This means that the new share of the ETF will be only created by using fiat currencies and not Bitcoin or any other digital currency. According to the SEC, such a mechanism guarantees that only the ETF issuers will be handling BTC and not an intermediary.

Cash creates are worse for taxes because cash changes hands, says ETF analyst Eric Balcunas. Trading without using fiat involves a trade and no cash exchanges. If the SEC only allows cash trades, it eliminates tax efficiency, a significant advantage of ETFs.

The SEC is anticipated to announce its decision on a spot Bitcoin ETF by January 10, 2024. However, it would initially apply only to Ark Invests ETF if approved.

A broader set of decisions for spot Bitcoin ETFs from BlackRock, Bitwise, Fidelity, VanEck, Galaxy, and Valkyrie is scheduled for no earlier than March 14, 2024.

The timeline practically coincides with the Bitcoin halving event at the end of April, which cuts BTC supply by half and eventually pushes the assets price to new highs.

We may expect increased volatility due to macroeconomic slowdown and global recession concerns. Yet, VanEck fund analytics predict that the Bitcoin price is unlikely to drop below $30k in Q1 2024.

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Funds Cash In Ahead of Spot Bitcoin ETF Approval. Will BTC Pull Back? - DailyCoin

Coinbase has changed its head of custody, potentially as a strategic decision for handling services related to spot Bitcoin ETFs.

The departure of Aaron Schnarch, the former Chief Executive Officer of Coinbase Custody, marks a pivotal shift in the companys leadership. Schnarchs position has been filled by Rick Schonberg, who joined Coinbase in 2021 and brings experience from previous stints at Goldman Sachs, State Street, and Tagomi.

Breaking: After @Grayscale shuffles their team before the ETF approvals, @Coinbase follows suit with Rick Schonberg replacing Aaron Schnarch at Coinbase Custody.

Aaron Schnarch, chief executive officer of Coinbase Custody, left in recent weeks, a spokesperson confirmed. He was pic.twitter.com/rUajrSXK6f

Coinbases custody division is recognized as a preferred choice for Bitcoin ETF applicants. This includes major financial players such as BlackRock, Franklin Templeton, and Grayscale Investments. The importance of custody services is heightened in the context of Bitcoin ETFs, where the security and management of tokens are critical for investor confidence and operational efficiency.

This leadership transition comes at a crucial time for the cryptocurrency industry. The race to secure the first U.S. regulatory approval for an ETF investing directly in Bitcoin has intensified. The SEC is expected to rule by Jan. 10 on an application for a spot Bitcoin ETF submitted by ARK Investment Management, headed by Cathie Wood, and 21Shares. The outcome of this decision may set a precedent for similar applications in the pipeline.

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Coinbase appoints new head of custody amid Bitcoin ETF preparations - crypto.news

Marathon Digital's (MARA -16.43%) stock has soared about 640% over the past 12 months. The bulls rushed back to the Bitcoin (CRYPTO: BTC) miner as the cryptocurrency's price stabilized and recovered from its steep decline in 2022. But is it too late to buy Marathon's stock after that massive rally?

Marathon was once a tiny patent holding company. But in 2020, it ordered tens of thousands of top-tier ASIC miners and rebranded itself as a pure-play Bitcoin miner.

Image source: Getty Images.

Many investors were initially skeptical of that plan, which sounded like a questionable way to profit from the market's soaring interest in Bitcoin. Nevertheless, Marathon consistently expanded over the following three years and became the world's largest Bitcoin mining company, with a fleet of about 184,400 active miners as of Dec. 1. Its closest competitor, Riot Platforms, operated a fleet of 112,944 active miners at the end of November.

Marathon produced an average of 38.4 BTC daily in November, which represented a 144% increase from a year earlier. Riot only produced 18.4 BTC daily, which represented a mere 6% increase from the previous year.

Marathon is scaling up its business at a much faster rate than Riot. Over the past year, it opened two new plants, launched a new joint venture in Abu Dhabi, and agreed to buy multiple BTC mining sites for $179 million in mid-December. Those bold moves will likely consolidate a large portion of the market and widen its lead against Riot.

Marathon generates most of its revenue from BTC mining. It also periodically sells the BTC it mines to boost its cash holdings. At the end of the third quarter of 2023, it held $101 million in cash and $287 million in BTC on its balance sheet. That marked the first time its total cash and BTC holdings exceeded its total debt.

Marathon's revenue soared from $4 million in 2020 to $150 million in 2021 as it deployed its first miners. But in 2022, its revenue declined to $118 million as BTC's price tumbled amid rising interest rates and other macro headwinds.

Looking ahead, analysts expect Marathon's revenue to more than triple to $359 million this year as BTC's price recovers and it significantly expands its mining operations. They also expect its revenue to rise another 47% in 2024 and 42% in 2025 -- but we should take those estimates with a grain of salt, because they're tightly tethered to BTC's volatile price.

Marathon's revenues are soaring, but it isn't consistently profitable on a generally accepted accounting principles (GAAP) basis, and it's taking on a lot of debt to expand its mining operations. It ended its latest quarter with a manageable debt-to-equity ratio of 0.3, but its leverage could keep rising as it brings its new miners and plants online.

Marathon has also gotten a bit overheated after its year-long rally. With an enterprise value of $6.1 billion, it trades at about 12 times next year's sales. Riot, which is growing at a slower rate than Marathon, trades at just 8 times next year's sales.

Another looming challenge is the imminent Bitcoin "halving," which cuts the rewards for mining BTC in half every four years. The last BTC halving occurred in 2020, so the next halving should happen in the first half of 2024. That event will likely boost BTC's market price, but it will also require Marathon to deploy more miners to mine the same amount of BTC.

Bitcoin's halving might coincide with the end of the "crypto winter" and light a fire under BTC's price again. If that happens, the soaring price of BTC should offset the higher costs of mining and significantly boost the cash value of its BTC reserves. But if BTC's price fails to take off, its mining costs will soar and its losses will widen.

Marathon Digital is still a highly speculative stock, but it could still have room to run if you believe Bitcoin's price will hit new highs over the next few years. I'd personally prefer to directly buy Bitcoin on the open market than invest in Marathon's capital-intensive business, but this mining stock could still outperform BTC over the long run as it scales up its business.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

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Is It Too Late to Buy Marathon Digital Stock? - The Motley Fool

As industry watchers eye the potential approval of spot bitcoin ETFs, one analyst says specific application updates in the coming days could be the difference between firms being able to launch such products, and not.

The US Securities and Exchange Commission is set to rule on a spot bitcoin ETF proposal by Ark Invest and 21Shares by Jan. 10. Some segment observers have said they expect the regulator to rule on other similar planned products at that time.

The regulator set a Dec. 29 deadline for fund groups to submit final updates to their bitcoin ETF filings, Reuters reported last week, citing unnamed firm executives.

Would-be issuers of these funds have met with the SEC in recent weeks and continue to update their applications. But fund groups are likely to add more details in the coming days, according to Bloomberg Intelligence analyst Eric Balchunas.

The SEC is ready to approve spot bitcoin ETFs, but only if they have clear language around cash-only creations and have a signed agreement with an authorized participant which many dont yet, Balchunas wrote in a Wednesday research note.

Authorized participants are entities allowed to create and redeem shares of an ETF. Such organizations can either exchange ETF shares for a corresponding basket of securities that reflects the ETFs holdings, or exchange them for cash.

Read more: The SEC continues meeting with bitcoin ETF hopefuls. Heres what theyre discussing

Though Grayscale Investments appeared to argue in meetings with the SEC that in-kind transactions are more efficient, it noted in a Tuesday filing that its proposed spot bitcoin ETF would only be able to accept cash orders.

However, and in common with other spot bitcoin exchange-traded products, the trust is not at this time able to create and redeem shares via in-kind transactions with authorized participants, and there has yet to be definitive regulatory guidance on whether and how registered broker-dealers can hold and deal in bitcoin in compliance with the federal securities laws, the document states.

BlackRocks proposed spot bitcoin ETF would also feature cash creations and redemptions a change the SEC seems to have pushed for based on various proposal amendments.

While some firms have agreed to bend the knee to the SEC on the cash transactions issue, Balchunas said, securing an agreement with an authorized participant could be trickier.

A lot will unfold in the next 48 hours; you hope they all can get it done and have the AP named in the S-1 as of Friday, he told Blockworks.

When I see a prospectus with the AP namedIm basically assuming that is a horse at the starting gate ready for approval, but that is up in the air, Balchunas added. Making it to the starting gate is half the battle at this point, so theres a race before the race.

Balchunas said in the Wednesday research note that Bitwise and BlackRock have authorized participant agreements in place, though they have not revealed them in filings. Spokespeople for the two companies did not immediately return a request for comment.

Grayscale was reportedly set to work with authorized participants Jane Street and Virtu Financial if its Grayscale Bitcoin Trust (GBTC) was allowed to convert to an ETF a report a Grayscale spokesperson confirmed at the time.

The firm did not name these companies as authorized participants in its latest S-3 filing, and a Grayscale representative did not comment further.

Even with all the crucial boxes checked, its possible the SEC still holds [Grayscale] back from the starting gate in the name of keeping a level playing field, Balchunas wrote.

GBTC launched in 2013, and eligible shares of the trust are quoted on the OTC Markets Group. It has roughly $26 billion in assets under management and regularly sees roughly $150 million in daily volume, the Bloomberg Intelligence analyst said in his latest note.

Thats a huge advantage for GBTC and makes it a clear favorite, even with the likes of BlackRock and Fidelity in the race, Balchunas added. This puts the SEC in a conundrum and risks it becoming a kingmaker.

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As bitcoin ETF saga hits possible homestretch, here's what to watch for - Blockworks