Grayscale Bitcoin Trust may explore a tender offer for up to 20% of its outstanding shares, a sign the digital asset manager could be looking to appease shareholders including three Fir Tree Capital Management funds that sued Grayscale and the trust earlier this month.
In an end-of-year letter to investors Monday, Grayscale Investments CEO Michael Sonnenshein said Grayscale remains "steadfast" in its belief that converting the trust to an exchange-traded fund would be in investors' best interests. Trust shares currently trade at a huge discount to the value of the underlying bitcoin the trust holds.
The lawsuit puts a spotlight on the long-standing cryptocurrency fund, which is a benchmark for the now-troubled industry and counts leading institutional investors among its holders.
The CEO letter cited a lawsuit Grayscale filed against the Securities and Exchange Commission in June after the regulator denied the conversion bid. While Grayscale is confident that the U.S. Court of Appeals for the District of Columbia Circuit will agree with its "compelling" arguments, the letter acknowledged what might happen if Grayscale doesn't prevail.
"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," the letter said, referring to the trust by its ticker symbol.
Among the options would be the tender offer, which would require both relief from the SEC and shareholder approval, the letter said.
That Grayscale is willing to explore a tender offer is an indication that it's feeling pressure, according to Eric Balchunas, Bloomberg Intelligence senior ETF analyst. Grayscale is perhaps looking to "maybe soothe or throw a bone to the shareholders" to hold them off a bit longer as Grayscale waits for its lawsuit to progress or perhaps for Gary Gensler to be replaced as SEC chairman, Mr. Balchunas said.
"I think they want to buy time until they can get that ETF conversion," the analyst said. "But the fact is they don't want to make everybody whole — that would cost them a lot."
Converting to an ETF, "it's like the perfect solution," Mr. Balchunas, said, adding, however, that "I don't think it's going to happen anytime soon."