• Grayscale’s Bitcoin Trust faces a continued decline in value, widening the discount to a record low of 50%.
• If the trust fails to convert into an exchange-traded fund (ETF), Grayscale CEO Michael Sonnenshein has suggested a tender offer of 20% of the trust’s $10.7 billion.
• Grayscale has filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) arguing that the SEC is acting arbitrarily and capriciously in violation of the Administrative Procedure Act and Securities Exchange Act of 1934 by denying the spot ETF.
Grayscale’s Bitcoin Trust, a $10.7 billion trust that was initially planned to trade like a bitcoin proxy as it sought ETF status, has recently been facing a decline in value. The trust involves a net asset value (NAV) discount or premium, which describes the difference in value between the trust’s shares and the underlying bitcoin held. Over the past few weeks, the trust has seen a widening discount to a record low of 50%, leading to apprehension amongst investors. In response to these concerns, Grayscale CEO Michael Sonnenshein has suggested that in the event that the trust fails to convert into an exchange-traded fund (ETF), potential moves could include a tender offer of 20% of the trust.
A tender offer is an invitation to shareholders to offload their shares at a specific time and price, effectively returning the value invested back to them. This would be beneficial for investors who are looking to exit the trust, as they would be able to receive at least some of their capital back. However, the trust’s current structure does not allow for investors to extract bitcoin out of the trust.
Grayscale has been attempting to acquire ETF status for some time, and after their most recent denial, the company filed a lawsuit against the U.S. Securities and Exchange Commission (SEC). Donald B. Verrilli Jr., Grayscale’s senior legal strategist and former U.S. solicitor general, argued that the SEC is failing to apply consistent treatment to similar investment vehicles. This statement was made in light of the SEC’s approval of multiple futures ETFs, starting in the summer of 2020.
Despite the uncertainty surrounding the Grayscale Bitcoin Trust, the company is committed to doing what is in the best interest of its shareholders. The tender offer is one of several possible options should ETF status not be achieved, and Grayscale has also indicated that it is open to exploring alternatives. Ultimately, the future of the trust will depend on the outcome of the lawsuit against the SEC.