Grayscale Investments may offer to buy up to a 20% stake in Grayscale Bitcoin Trust (GBTC). The company hopes this move will close the gap between the GBTC stock price and the company’s underlying bitcoin holdings.
Grayscale cannot operate independently of investors
The Wall Street Journal published a letter from Grayscale CEO Michael Sonnenshein urging that Grayscale would consider making a takeover bid should the Security and Exchange Commission (SEC) and shareholders approve. As a closed fund, GBTC shareholders can only liquidate their holdings in the open market.
Under the Williams Act (part of the Securities Exchange Act of 1934), which governs takeover bids in the United States, an investor making an offering of securities must disclose its source of funds, legal agreements related to the offering, and the reasons for the offering.
GBTC is trading at $8.08 on the 24-hour chart. Source: TradingView
If the company cannot return GBTC shareholders’ funds, it will continue the acquisition until it is converted into an ETF.
sunshine wrote to investors:
In the event that we are unsuccessful in pursuing options to return a portion of the capital to shareholders, we do not currently intend to wind up GBTC but would instead continue to operate GBTC without an ongoing redemption program until we successfully convert it into a spot Bitcoin ETF.
Grayscale is currently embroiled in litigation with the SEC after filing to convert GBTC to a spot bitcoin ETF on June 29, 2022.
The CEO’s letter was an attempt to allay shareholder concerns after a turbulent few months in the crypto market.
ETF conversion seems to be the only option
Currently, Grayscale doesn’t have a specific timeline for when it might explore options other than ETF conversion.
The lawsuit appears to be a protracted battle. Grayscale filed its opening brief against the SEC on October 11, 2022. In response, the SEC filed a brief on December 13, 2022, dismissing Grayscale’s allegations that the rejection was discriminatory and arbitrary.
The company has until January 13, 2023 to respond. A panel of three judges is then selected to hear oral arguments and rule on the case.
Grayscale’s Bitcoin Trust has approximately $10.78 billion, or 633,000 BTC, in assets under management. The fund fell short of its target and is currently changing hands at a discount of 48.8% to Bitcoin.
Source: YCharts
Sonnenshein did not clarify whether the company could later sell its Bitcoin holdings. However, a market dump like Grayscale could see Bitcoin plummet to a new yearly low.
The sale of Grayscale’s Bitcoin stash could also hurt confidence in crypto as there are significant liquidations for those operating in the Bitcoin derivatives markets. This would hurt crypto volume and send a bearish crypto market further lower.
Featured image by Finbold, charts by Ycharts and TradingView.com
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