• Grayscale CEO Michael Sonnenshein has proposed that if the Grayscale Bitcoin Trust fails to convert into an ETF, a tender offer of 20% of the $10.7 billion trust could be made.
• A tender offer would allow shareholders to offload their shares at a specific time, effectively returning the value invested back to them.
• 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).
Grayscale Bitcoin Trust has been facing a decline in value and a widening discount to 50%, a record low, stoking fears among investors. In response, Grayscale CEO Michael Sonnenshein proposed that should the trust fail to convert into an exchange-traded fund (ETF), a tender offer of 20% of the $10.7 billion trust could be made. A tender offer would appeal to shareholders to offload their shares at a specific time, effectively returning the value invested back to them.
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.
Unfortunately, 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 Wisdomtree Bitcoin ETF. 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. If the tender offer is successful, it may provide investors with an alternative to the ETF and the trust’s ongoing declining value.