Grayscale CEO Michael Sonnenshein stated in a letter to investors that should the Grayscale Bitcoin Trust fail to convert into an exchange-traded fund (ETF), potential moves could include a tender offer of 20% of the $10.7 billion trust.
A tender offer would appeal to shareholders to offload their shares at a specific time, effectively returning the value invested back to them.
Grayscale’s Bitcoin Trust was originally planned to trade like a bitcoin proxy as it sought ETF status, involving a net asset value (NAV) discount or premium. The premium or discount describes the difference in value between shares of the trust and the value of the underlying bitcoin held. When the value of the shares of the trust are higher than the underlying bitcoin, it is considered a premium. When the value of the shares drop below the underlying bitcoin, it is considered a discount.
Investors have recently had to consider their options as the trust faces a continued decline in value, widening the discount to 50%, a record low, stoking fears of already jumpy investors. There is no way to extract bitcoin out of the trust.
Grayscale has been attempting to acquire ETF status for a while, and most recently after being denied, filed a lawsuit against the U.S. Securities and Exchange Commission (SEC). In the lawsuit, Donald B. Verrilli Jr., Grayscale’s senior legal strategist and former U.S. solicitor general, stated that “As Grayscale and the team at Davis Polk & Wardwell have outlined, the SEC is failing to apply consistent treatment to similar investment vehicles, and is therefore acting arbitrarily and capriciously in violation of the Administrative Procedure Act and Securities Exchange Act of 1934.”
Despite the SEC’s repeated denial of a spot ETF, it has approved multiple futures ETFs, starting with the ProShares BITO ETF in October of 2021. The reasoning behind this, according to Chairman Gary Gensler, is that futures have “Bitcoin futures have been overseen by sibling agency CFTC for 4 years. That’s wrapped inside the 1940 Act which brings it inside investor protection.”