After a month of headlines about its flagship product, the Grayscale Bitcoin Trust (GBTC), trading with a negative premium, the world’s largest crypto exchange-traded product (ETP) provider is fighting back. In a post earlier this week, the global market leader with a little more than 75% of all $61 billion in ETP crypto assets under management announced that it will convert the GBTC in an exchange-traded fund “when permissible,” meaning when the SEC is ready to approve its first bitcoin ETF.
Although Grayscale has been thinking along these lines for a while now, the timing of the announcement could be seen as an acknowledgement that it is feeling competitive pressure from a cacophony of new bitcoin ETF applications, including one from industry heavyweight Fidelity.
Furthermore, there appear to be some signs of investor unrest, with at least one—the activist group Marlton LLC—requesting that Grayscale conduct a modified dutch auction tender offer to help compensate shareholders. I spoke with James Elbaor, managing partner at Marlton LLC, and he made it clear that he holds Grayscale responsible for the negative premium. That said, Grayscale strongly pushed back on the supposition that it executes direct control over the premium and noted that they have no intention of offering such a tender offer. This is a perspective shared by at least one prominent securities lawyer who worked on the very first bitcoin ETF application in the US, Gregory Xethalis, Partner at Chapman and Cutler LLC. He told Forbes in an interview that “under the [GBTC] trust agreement and Delaware law a sponsor [Grayscale] has limited fiduciary duties and maintaining a secondary market share price premium is not one of them”. It is also worth noting that Grayscale’s filing documents state the potential for both positive and negative premiums.
Grayscale’s Roadmap to a Bitcoin ETF
Grayscale’s announcement provides a systematic, four-stage approach to an ETF, albeit without timelines:
- Launching of a private placement. A fund whose shares are only available to wealthier investors, where initial purchases are controlled by the issuing party.
- Obtaining a secondary market quotation. Once purchased shares complete their lockup periods (often 6-12 months), they can then be listed on exchanges for public trading. Through this step initial purchasers cash out of the private placement shares by selling them to a wider base of investors. Currently GBTC, as well as its products offering exposure to ether (ETHE), litecoin (LTCN), ethereum classic (ETCG) and Graysclae’s composite large scale fund (GDLC), trade on OTCQX.