GBTC Not Interested in Redemptions, but Considering Other Options

Potential tender offer would ease some investor concerns and could reduce GBTC discount, but not a full solution, analysts say

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Blockworks exclusive art by Axel Rangel modified by Blockworks

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Though Grayscale remains committed to trying to convert its Bitcoin Trust (GBTC) to an ETF, the firm’s CEO said the firm could explore other options to return a portion of GBTC’s capital to shareholders.

But the trust, which was trading at about a 48.6% discount to its net asset value (NAV) on Friday, is still not interested in offering redemptions.

Michael Sonnenshein, the digital currency asset manager’s CEO, said in a letter to investors that if it is unsuccessful in converting GBTC to an ETF, the firm would consider a tender offer amounting to no more than 20% of the outstanding shares of GBTC. 

A tender offer is a public solicitation to shareholders requesting that they tender their shares for sale at a specific price during a certain time. Details related to such a tender offer would be provided at the time it takes place, a spokesperson told Blockworks.

Dave Nadig, a financial futurist at data company VettaFi, said that while he agrees with Grayscale that a spot bitcoin ETF should probably exist, he is skeptical that suing the SEC to convert an over-the-counter trust into one is the best way to get there. Nadig said the tender offer would help reduce the GBTC discount but is no panacea.

“[It] wouldn’t solve the fundamental problem that the one-way-door that is GBTC is a tough way to gain exposure to bitcoin,” he told Blockworks.

Bloomberg Intelligence ETF Analyst James Seyffart agreed with Nadig, but said he believes the best solution remains for Grayscale and its investors is to convert GBTC to an ETF. 

“They need a [Regulation M] exemption to offer redemptions and keep the trust operating,” Seyffart told Blockworks. A Reg M exemption is automatic in the case of an ETF conversion, but could also be requested independently, if Grayscale opted to do so.

No interest in offering redemptions

Grayscale is still not interested in offering a redemption program for the trust, Sonnenshein said in the letter. 

“In the event we are unsuccessful in pursuing options for returning a portion of the capital to shareholders, we do not currently intend to dissolve GBTC, but would instead continue to operate GBTC without an ongoing redemption program until we are successful in converting it to a spot bitcoin ETF,” the CEO wrote.

Fir Tree Capital Management filed a complaint in Delaware’s Court of Chancery in an effort to gain information into the potential “mismanagement” of GBTC. 

The complaint states: “In the absence of any legal prohibition that would restrict the trust from accommodating redemptions, Grayscale appears to be maintaining this untenable status quo to enrich itself, its management, and its affiliates.”

When asked Monday why GBTC would continue operating without a redemption program if not approved to convert to an ETF, a Grayscale spokesperson told Blockworks the firm believes an ETF is “the best long-term product structure and remains confident that a spot bitcoin ETF is a matter of when, not if.”

Seyffart told Blockworks that while redemptions would likely be a good solution for GBTC investors, it would be bad for Grayscale and likely a negative development for bitcoin’s price. The fund holds about 630,000 bitcoin, he said. 

“A significant portion of those coins being sold on the open market certainly wouldn’t be a positive situation for bitcoin,” Seyffart said.

Bitcoin’s price was about $16,700, as of 10:30 am ET — down about 2% from a week ago. 

More waiting

A potential tender offer would be considered only after GBTC is unsuccessful in converting GBTC to an ETF, Sonnenshein said in the letter. 

That could be awhile.   

Grayscale filed its first brief against the SEC in October. Craig Salm, the company’s chief legal officer, said at the time he expects the suit to take between nine and 12 months.

The litigation stems from the SEC denying GBTC’s proposed conversion to a spot bitcoin ETF earlier this year.

The firm is drafting its response to the SEC’s latest brief and is set to submit it by Jan. 13. Final written briefs are slated to be submitted by Feb. 3, as a three-judge panel will then be selected to hear oral arguments and rule on the case.


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