Grayscale’s Michael Sonnenshein on bringing Main Street investors into digital assets

Beyond the crazy things happening with digital currencies and crypto, there are companies building real businesses in digital assets. Grayscale is a digital currency manager for investors to get access this new asset class. Directly buying cryptocurrencies is complicated, so Grayscale has created single asset and diversified trusts that investors of all types can buy in their brokerage accounts or through a financial advisor.

If it sounds old school, it kind of is. Much of the Grayscale team hails from Wall Street and the firm has taken cues from established asset managers. Managing director Michael Sonnenshein joins me on the podcast to discuss the firm’s #DropGold campaign which aims to position investing in bitcoin as the modern version of investing in gold. We talk about who’s investing in digital assets and why.

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The following excerpts were edited for clarity.

Helping investors invest in digital currencies

The Grayscale business was meant to help investors gain access to the digital currency asset class. We have long taken the view that digital currencies haven't only arrived, but they are here to stay. There are certain qualities and characteristics of digital assets that make them difficult for investors to determine where to buy, transfer, and store them.

In early 2013, we launched our first investment fund, which is a long only, passively managed Bitcoin fund. After surveying many different investment structures, we decided to replicate the structure used by many commodity funds. Investors can buy shares of a fund and it gives them exposure to the underlying asset. It's a structure that's been used for things like gold and silver and we replicated it for Bitcoin. Today we have 10 investment products -- 9 of which give investors exposure to a single digital currency.

How competitive will digital asset managers be versus incumbents over the long term?

For us at the moment, we're certainly taking our clues and best practices from the incumbents. It's important that we surround each of our products with best of breed product and service providers. Also, most of our team are ex-Wall Street, having spent time at large banks, hedge funds or accounting firms. It's given them a fantastic background and experiences that translate well into a startup environment like Grayscale.

Capital flows into digital currencies

There has been a lot of demand. When you look back at 2018, which was characterized by nothing but declines in digital asset prices, for us, it was the strongest stretch of inflows we've ever experienced. Last year, we raised just shy of $360 and this year, we're off to a strong start.

We deal with a broad set of investors, from retail to institutional. Investors aren't only looking for Bitcoin but also diversifying into other digital assets.

The #DropGold campaign

We're really trying to get folks to reconsider their asset allocation, particularly gold. We want them to rethink what they should move into -- one of which we feel should be Bitcoin. That has resonated well with the investment community and we've seen a big uptick in our publicly quoted shares for sure.

The Bitcoin versus Gold argument has been active in the investment community the past couple of years. People cling to the notion that gold was a physical store of value in a physical world. Bitcoin is a digital store of value in a digital world. They share similar attributes but perhaps, Bitcoin outshines gold as a more portable, divisible, verifiable scarce asset. Maybe the 60/40 asset allocation model doesn't hold up anymore.

We created DropGold.com as an educational resource about gold and Bitcoin. We're promoting it through linear television, social media, and display advertising. We've seen a tremendous uptick in social media engagement and daily trading volume across the product suite.