Grayscale's new CEO takes office. Why did the old crypto company choose a Wall Street helmsman?

Original title: A Goldman Sachs and BlackRock vet is now CEO of crypto giant Grayscale. Is he up to the job?

Original author: Leo Schwartz, Fortune

Original translation: Luffy, Foresight News

Peter Mintzberg officially took over as CEO of Grayscale, and one of the oldest companies in the cryptocurrency industry will hand over power to a Wall Street veteran. Mintzberg has held senior positions at Goldman Sachs and BlackRock, and this appointment has raised questions about Grayscale and the future direction of the cryptocurrency industry.

Under the leadership of former CEO Michael Sonnenshein, Grayscale brought traditional investors into the crypto space through its Bitcoin Trust product. Subsequently, in August 2023, Grayscale won a legal battle with the U.S. Securities and Exchange Commission (SEC), which promoted the progress of the Bitcoin ETF. Sonnenshein joined Grayscale as a salesman in 2014 and became CEO in 2021.

However, while Grayscale paved the way for the now-thriving Bitcoin ETF, it also forced him to face larger competitors such as BlackRock and Fidelity. Since the launch of the Bitcoin ETF in January, Grayscale has seen a continuous outflow of crypto assets under management. To make matters worse, its parent company Digital Currency Group (DCG) has also been busy dealing with lawsuits from the New York Attorney General and the U.S. Securities and Exchange Commission.

Mintzberg previously worked at Grayscale's competitors for 20 years and has an outstanding resume and achievements in traditional finance. But as an industry outsider, whether he is suitable to lead a crypto company that is trying to reinvent itself remains a question mark.

Peter Mintzberg, Grayscale’s new CEO

Crypto Arms Race

When Grayscale launched its Bitcoin Trust in 2013, it created something truly novel: a way for accredited investors to acquire cryptocurrency in the form of shares, a very attractive alternative to the many non-compliant institutions that were selling cryptocurrency directly at the time.

In 2015, Grayscale’s Bitcoin Trust began trading publicly on the over-the-counter market, creating lucrative arbitrage opportunities for accredited investors who were the first to buy GBTC (the ticker symbol for the Bitcoin Trust). These investors bought GBTC (and later trust products for assets such as Ethereum) first, then resold them at a premium a few months later to retail investors who wanted to participate in the crypto craze, reaping huge gains.

But the trust structure also meant that investors could not redeem their shares of GBTC for the price of physical Bitcoin, and these trust products began to trade at a discount in early 2021. The dominoes fell, and several cryptocurrency companies affected, such as Three Arrows Capital and FTX, announced their closure the following year. To make matters worse, investors were angry that Grayscale continued to charge management fees as high as 2%.

This led Sonnenshein to sue the U.S. Securities and Exchange Commission (SEC), forcing the SEC to approve its long-standing application to convert the trust product into an ETF, because the ETF allows investors to redeem physical Bitcoin. In 2023, the court sided with Grayscale in a ruling. The ruling was hailed as a major milestone for cryptocurrency and ultimately promoted the launch of the Bitcoin ETF in January 2024.

While Sonnenshein led Grayscale to a successful path, the company still faced a series of challenges. New competitors such as BlackRock and Fidelity set ETF fees at near-zero levels, but Grayscale only reduced its fees from 2% to 1.5%, and investors flocked out of Grayscale and embraced its competitors. Bloomberg analyst Eric Balchunas told Fortune: "Sonnenshein is in a dilemma. On the one hand, the company needs funds, and on the other hand, it wants to remain competitive in the ETF field. This is mutually exclusive."

Grayscale Bitcoin Trust and ETF market value, source: SP GLOBAL

The Grayscale board and DCG began searching for a new CEO in late 2023, before the Bitcoin ETF was officially approved, but the court victory paved the way for it, according to the Wall Street Journal.

The board’s decision to remove Sonnenshein was driven by a desire to find a more experienced leader in Grayscale’s new growth phase, enabling the company to compete with larger firms like BlackRock and Fidelity, according to people familiar with the matter. A person close to Sonnenshein disputed that account, saying the decision was a mutual one, as Sonnenshein had been at the company for 10 years.

“Peter has the experience, vision, and maturity of a seasoned C-level executive who has worked at some of the largest asset managers in the world,” Mark Shifke, DCG CFO and chairman of Grayscale’s board, said in a statement shared with Fortune.

Regulatory Burden

While Sonnenshein successfully completed the conversion of the trust product, continued outflows of about $20 billion from ETFs have put new pressure on the company. “This outflow momentum is difficult for Grayscale to withstand,” Balchunas said. “I have never seen anything like it.”

An unnamed executive at another ETF issuer told Fortune that Grayscale may want to find a leader who does not have the regulatory burden that Sonnenshein does, even though Sonnenshein has never been accused of any financial wrongdoing. Grayscale wants its product to be included in the list of trusted products as large investment banks such as Morgan Stanley begin to allow advisors to recommend Bitcoin ETFs to clients. "They want someone who is experienced in this area and who doesn't have any regulatory issues," the executive said.

Steven McClurg, chief investment officer of Grayscale's old rival Valkyrie, once bid to manage the Grayscale Bitcoin Trust. McClurg told Fortune magazine that Grayscale has been working to prove its legitimacy by recruiting David LaValle. LaValle, who worked at State Street and Nasdaq, joined Grayscale as global head of ETFs in 2021. Hiring Mintzberg represents Grayscale's next move.

“Grayscale has a lot of work to do to catch up to Invesco, BlackRock and Fidelity,” McClurg said. “DCG has enough problems already, and it may be several years before they can get out of regulatory trouble.”

Mintzberg’s Arrival

Mintzberg joins Grayscale at a critical time. Grayscale has launched two key products in recent weeks, including an Ethereum ETF and a “mini” version of the Bitcoin ETF, the latter of which charges lower fees. Grayscale had $28 billion in assets under management at the end of the second quarter, according to a letter shared by DCG with shareholders this week, providing a significant revenue stream for the parent company.

However, Grayscale’s future path is unclear as its two flagship products face competition. At the time of the Bitcoin ETF’s launch, there were rumors that Grayscale was about to be acquired, but its high price and regulatory burdens deterred potential buyers. One competitor, who spoke to Fortune on condition of anonymity, said hiring Mintzberg could be seen as a commitment to keep Grayscale competitive or as a strategy to improve the company’s image ahead of a potential acquisition.

Mintzberg is a seasoned operator who has held strategy and investor relations roles at firms that currently offer crypto ETFs, including BlackRock and Invesco. He also led Goldman Sachs’ crypto asset strategy from 2021 to 2023, according to Mintzberg’s LinkedIn information.

Mintzberg also seems happy with this career transition. He spent his last day at Goldman last Wednesday, hours before starting his new role at Grayscale, according to a person familiar with the matter. Mintzberg declined to be interviewed for this article, keeping a remarkably low profile for an incoming CEO.

“Peter is a veteran of the asset management industry with deep expertise and leadership in driving client-centric growth strategies,” a Grayscale spokesperson told Fortune.

Born in Brazil, Mintzberg attended Harvard Business School in the late 1990s before beginning his asset management consulting career at McKinsey.

Mintzberg was still at Invesco when Oppenheimer Funds was acquired by the firm in 2019. Former Invesco CFO Loren Starr told Fortune that Mintzberg played an important role in helping the new firm handle investor relations during a period when Invesco’s communications with investors were “confused and unclear.” Mintzberg will face similar challenges at Grayscale as it tries to compete with larger, cheaper rivals.

Balchunas said that in addition to expanding its product range (including new products focused on artificial intelligence), Grayscale’s main task is to use its relationships with large institutions to participate in ETF negotiations. "Sonnenshein is more famous as a crypto fund manager, while Mintzberg has rich traditional financial experience and background," he told Fortune magazine. "If you want to cultivate the perfect CEO for an asset management company, Mintzberg is the best choice."

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