Grayscale, issuer of the Grayscale Bitcoin Trust (GBTC) – the most expensive and worthless Bitcoin investment product in public markets, is set to argue its case against the Securities and Exchange Commission (SEC) on March 7th. The investment firm has charged the agency with arbitrarily denying its application to convert GBTC into a Bitcoin ETF.
Launched in 2013, the Trust was the first publicly traded bitcoin investment vehicle available to investors in the U.S. Like its underlying asset, the Trust’s share price is prone to volatile price swings.
It has been trading at a discount to its net asset value (NAV) since 2021. In the aftermath of recent crypto crises, that discount has widened to more than 40%. An ETF conversion might enable Grayscale to purchase shares to induce artificial demand and reduce the discount.
A Question of Ownership
The SEC is playing spoilsport, however.
A public spat with cryptocurrency exchange Gemini over the liabilities of its lending arm Genesis Global Capital has drawn Grayscale’s parent company, Digital Currency Group, into the ever-widening cloud of crypto crises. If its problems spill over into Grayscale, there’s talk that it might be forced to liquidate its holdings of Bitcoin from GBTC.
Craig Salm, chief legal officer at CoinDesk, appeared to preclude this possibility on CoinDesk’s show this morning. He said such talk displayed a “fundamental misunderstanding” about the ownership of shares. “Shares of GBTC are owned by the investors,” he declared. “We do not own any shares.”
Technically, he is correct. Grayscale is the Trust’s Sponsor and not its Trustee. As Sponsor, however, Grayscale has the “duty and authority to manage the Trust’s affairs.”
GBTC shares entitle investors to cash equal to their Bitcoin holdings upon redemption. The trust’s current structure makes it impossible for them to redeem their shares in kind. Its shareholder agreement also makes clear that the investment firm has “incidental rights” relating to the ownership of Bitcoin.
GBTC shareholders have very few rights, in fact. Dissolution of the trust will not bring them much relief since they may be last in line for redemption. Even the cash redeemed is based on the amount available to the trust. At current bitcoin prices, that may not be much.
Bitcoin Price Rises Again
Bitcoin price’s rise continues. It rose to $23,800, based on CoinDesk data, yesterday evening. As of this writing, it is changing hands for $23,077 from the same provider.
As usual, it is difficult to ascertain specific reasons for the cryptocurrency’s bull cycle. For some, it is a sign of renewal and the beginning of another bull cycle. Others are skeptical. An indication of this is an increase in the number of short bets against Bitcoin among publicly traded investment funds.
According to the latest data from investment firm CoinShares, Americans are most skeptical of the cryptocurrency’s bull run and they were responsible for the highest weekly inflows into funds.