Published
1 year ago on
December 31, 2022
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Crypto Assets Manager Valkyrie Investments has unveiled a proposal to become the sponsor and manager of the Grayscale Bitcoin Trust.
The Grayscale Bitcoin Trust (GBTC) is the world’s largest Bitcoin fund and has been trading at a record discount compared to the price of BTC.
The Valkyrie Proposal
In a blog post published this week, Valkyrie Investments proposed becoming the sponsor and manager of the Grayscale Bitcoin Trust, which will see the company manage its much larger rival. The Nashville-based asset manager, which manages around $180 million in assets, announced the launch of the Valkyrie Opportunistic Fund, which is looking to take advantage of the significant discount in the value of the Grayscale Bitcoin Trust.
The plan is considered extremely ambitious, considering the fact that the Grayscale Bitcoin Trust manages over $10 billion in assets, compared to Valkyrie’s $180 million. The Valkyrie fund plans to increase its holdings of GBTC, enabling the company to realize the true value of the underlying Bitcoin for its investors. In a letter posted on its website, co-founder and CIO of Valkyrie Investments, Steven McClurg, stated,
“We understand that Grayscale has played an important role in the development and growth of the Bitcoin ecosystem with the launch of GBTC, and we respect the team and the work that they have done. However, in light of recent events involving Grayscale and its family of affiliated companies, it is time for a change. Valkyrie is the best company to manage GBTC to ensure its investors are treated fairly.”
A Long Shot?
In the proposal, Valkyrie highlighted several ways through which they aim to improve the current management of GBTC. The fund stated that it aims to facilitate redemptions at a net asset value (NAV) for investors through a Regulation M filing, allowing investors to redeem their shares at a fair price. The proposal also seeks to lower the fee to 75 basis points, compared to the current 200 basis points, and offer redemptions in BTC and cash.
However, a move to manage and sponsor the trust could be a long shot, considering Grayscale filings have stated that shareholders can play no part in the management or control of the trust. Additionally, they also have limited voting rights. It also states that no amendments to the trust agreement that could impact the interest of shareholders can be made without a vote of at least a majority (50%) of the shares.
Valkyrie also noted that it has a proven track record of success, running its own Bitcoin Trust since January 2021. It added that it has launched a host of Bitcoin-related ETFs and was, along with VanEck and ProShares, one of the firms to launch the first Bitcoin futures ETFs in 2021.
Trading Below Value
Currently, the Grayscale Bitcoin Trust is trading around 50% below the value of the Bitcoin it holds. This is because of the structure of the GBTC, where while new shares can be created, they cannot be destroyed as demand for the trust’s underlying Bitcoin faces a bit of a downturn, leading to a discount in the net asset value. On its part, Grayscale tried to convert the GBTC into an exchange-traded fund (ETF) which would allow for share redemptions.
However, the Securities and Exchange Commission (SEC) denied the application to convert GBTC into a spot bitcoin ETF. Grayscale was highly critical of the move by the SEC, calling it arbitrary, capricious, and discriminatory, and filed a lawsuit against the agency.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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