With the Grayscale Bitcoin Trust (GBTC) hitting deeper discounts by the day, the firm's CEO is now weighing new options for how to shore up investors should the trust fail to get converted into a Bitcoin ETF.
Grayscale's flagship offering gives more traditional investors an easy way to gain exposure to Bitcoin without needing to buy or hold Bitcoin themselves. In June, Grayscale filed a lawsuit against the SEC after the regulator again rejected the firm's spot Bitcoin ETF application.
"If we are not successful in our legal challenge in all applicable courts–and we conclude there is no possibility of legislative or regulatory clarity that would allow for the conversion of GBTC to an ETF within a reasonable timeframe–we would explore other options to return a portion of GBTC’s capital to shareholders," wrote Grayscale CEO Michael Sonnenshein in a year-end letter to investors on Monday.
Sonnenshein affirmed that the firm is still determined to get its application approved and convert its ailing Bitcoin trust into a spot ETF. The SEC has still not approved any spot Bitcoin ETF in the U.S., only Bitcoin futures ETFs, which are tied to bets on the future price of Bitcoin rather than the current price.
In the meantime, Grayscale is now weighing whether to make a tender offer for 20% of the outstanding shares of the Grayscale Bitcoin Trust (GBTC). In order to make such an offer, Grayscale would need shareholder approval to amend the GBTC trust agreement, which currently does not allow the repurchasing of GBTC. It would also need the SEC to lift "certain requirements" pertaining to the execution of tender offers.
If these approvals happen, then Grayscale expects to "continue operating GBTC without an ongoing redemption program until we are successful in converting it to a spot bitcoin ETF."
The great Grayscale Bitcoin discount
Sonneshein's eagerness to convert GBTC to a spot Bitcoin ETF is due to the growing divide between the price of GBTC and the price of the underlying Bitcoin it's supposed to track.
Per YCharts, shares in GBTC are currently trading at a 48.57% discount to actual Bitcoin. GBTC first began trading at a discount in February 2021.
This discount has emerged due to market volatility and shareholders' inability to redeem their shares for the underlying. There is no way for investors to buy discounted shares, redeem the Bitcoin, and sell the Bitcoin for a profit to arbitrage away the difference.
If Grayscale's Bitcoin ETF dreams are realized, this trade would become readily available.