Grayscale Bitcoin Trust: Company considering takeover bid if fails to convert fund to ETF

Grayscale Investments continues its battle with the Securities and Exchange Commission to get approval to convert its Grayscale Bitcoin Trust into an ETF, after numerous failed attempts. However, the company said that if it ultimately fails, it could explore another avenue: a public offer to buy up to 20% of the outstanding shares of the $10.7 billion fund. This was revealed by Micheal Sonnenshein, CEO of the trust, in a letter to investors. Shareholders would then be asked to sell their shares at a set price within a set period of time.

This could be an advantage for investors, since their shares cannot be redeemed, but rather be sold on the market at a deep discount to the net asset value. In addition, certain shareholders such as DCG, Genesis, and other affiliated entities that collectively own nearly 10% of Grayscale’s total outstanding shares may only sell up to 1% of total outstanding shares on the public markets every three months, subject to Rule 144 of the Securities Exchange Act of 1933.

Compared to the price of Bitcoin, the grayscale bottom is worth about half of the price of the cryptocurrency, and this difference widened throughout 2022 when the cryptocurrency market crashed. Among other things, each year shareholders receive a 2% commission on the value of their participation.

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To try to cut shareholder losses, Grayscale worked to convince the SEC to convert the fund into an ETF. But the American stock exchange authority has so far always stood firm in its positions: cryptocurrencies are not regulated and therefore, to prevent fraud and price manipulation, ETFs will only be allowed on Bitcoin futures and not on the price. cash. That prompted protests from the trust, which sued the SEC in June in an ongoing lawsuit. According to the fund, futures ETFs are not of interest to investors, because in addition to not offering alternatives, they produce a certain disadvantage due to rollover at maturity, which would not occur with cash products.

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The public offering was defended last year by Marlton LLC, a hedge fund focused on closed-end funds, that the transaction could eliminate, or at least reduce, the Grayscale Trust discount on the price of Bitcoin. Grayscale then responded that this alternative could be implemented after the SEC’s decision and shareholder approval.

Now, it seems the conditions are ripening for that to happen, and furthermore, the company has indicated that it may consider even more offers should the first such attempt prove successful. In the event that Grayscale is unable to return the capital to shareholders in a takeover bid, Sonneshein said at this point that the company would continue to operate the trust without a redemption schedule until it can eventually convert it into a spot Bitcoin ETF. .