• Grayscale’s Bitcoin Trust has been struggling recently with its value declining and the discount reaching a record low of 50%.
• In response to potential failure, Grayscale CEO Michael Sonnenshein has suggested a potential tender offer of 20% of the trust’s $10.7 billion value.
• Grayscale has been attempting to obtain ETF status and recently filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) for its alleged arbitrary treatment of similar investment vehicles.
Investors in Grayscale’s Bitcoin Trust have recently had to consider their options as the trust faces a continued decline in value, widening its discount to a record low of 50%, stoking fears among already jumpy investors. In response to potential failure, Grayscale CEO Michael Sonnenshein has suggested a potential tender offer of 20% of the trust’s $10.7 billion value to appeal to shareholders to offload their shares at a specific time, effectively returning the value invested back to them.
A tender offer is a type of offer that allows investors to offload their shares at a specific time, usually at a predetermined price. It is often used when companies are looking to acquire new investors or if the company is looking to make a takeover. The Grayscale 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 measures the difference in value between the shares of the trust and the value of the underlying bitcoin held.
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.”
This is not the first time that Grayscale has been denied ETF status by the SEC. While the SEC has repeatedly denied a spot ETF, it has approved multiple futures ETFs, starting with the VanEck-SolidX Bitcoin Trust in December 2020. Despite ongoing efforts to obtain ETF status, Grayscale’s investors have had to grapple with the prospect of the trust’s continued decline, with no way to extract the underlying bitcoin out of the trust.
As the future of the trust remains uncertain, investors and those within the cryptocurrency industry will be watching to see how Grayscale’s lawsuit against the SEC plays out and what action the company takes in the meantime.