Grayscale Bitcoin Trust’s ETF Denial: Investors in Limbo After Record Low Discount5. January 2023
• Grayscale Bitcoin Trust has been attempting to acquire ETF status for a while, most recently filing a lawsuit against the SEC for their denial.
• Michael Sonnenshein, CEO of Grayscale, has suggested a tender offer of 20% of the $10.7 billion trust should it fail to convert into an exchange-traded fund (ETF).
• Investors have had to consider their options as the trust has seen a record low discount of 50% between the trust’s shares and the underlying value of bitcoin.
The Grayscale Bitcoin Trust has long been attempting to acquire an exchange-traded fund (ETF) status, but has seen multiple rejections from the US Securities and Exchange Commission (SEC). Despite the SEC’s continuous denial of a spot ETF, they have approved multiple futures ETFs, starting in 2020. Facing a continual decline in value, Grayscale Bitcoin Trust CEO Michael Sonnenshein has proposed a potential solution.
In a letter to investors, Sonnenshein suggested that if the Bitcoin Trust fails to convert into a ETF, a tender offer of 20% of the $10.7 billion trust could be implemented. A tender offer would encourage shareholders to offload their shares at a certain time, essentially returning the invested value back to them. The trust had originally been planned to act as a bitcoin proxy, with a net asset value (NAV) discount or premium. The premium or discount describes the difference in value between the trust’s shares and the underlying value of the bitcoin held. When the value of the shares are higher than the underlying bitcoin, it is considered a premium. Conversely, when the value of the shares drops below the underlying bitcoin, it is considered a discount.
Recently, the trust has seen a record low discount of 50%, causing panic among investors. There is no way to extract bitcoin out of the trust, leaving shareholders considering their options. To try and address the issue, Grayscale has filed a lawsuit against the SEC. The lawsuit claims that the SEC is not acting fairly and is violating the Administrative Procedure Act and the Securities Exchange Act of 1934.
Despite the potential solutions proposed by Grayscale, the future of the Bitcoin Trust remains uncertain. The SEC’s decisions will ultimately decide the fate of the trust, and investors are left to wait for the outcome.