Valkyrie Investments has submitted a proposal to take over the troubled bitcoin trust GBTC.
“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 they have done,” said Valkyrie co-founder and CIO Steven McClurg. in a statement posted on the company’s website. “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 run GBTC and ensure its investors are treated fairly.”
McClurg told Bitcoin Magazine that the proposal would be for current GBTC shareholders to vote on. via proxy. If elected by shareholders, Valkyrie would become the sponsor.
However, the process is not as simple as it seems. As highlighted in a Bloomberg report, “Grayscale filings establishes that shareholders do not participate in the administration or control of the trust and have limited voting rights. In addition, no modifications can be made to the trust agreement that could materially affect the interests of the shareholders with the vote of at least the majority, that is, 50%, of the shares.”
McClurg explained to Bitcoin Magazine that Valkyrie is aware of those issues and has planned ahead. He declined to comment on the details of what that plan might entail, but hinted that this wouldn’t be the first time they’ve accomplished such a goal. When it comes to plans after an eventual acquisition, McClurg is clear.
The first action Valkyrie would take should it become a sponsor and manager of GBTC would be to “immediately apply for Reg M exemption,” the executive explained. Grayscale CEO Michael Sonnenshein said yahoo finance earlier this month that the trust not allowing the redemptions is the result of a 2014 US Securities and Exchange Commission (SEC) shutdown, which found that the GBTC redemptions violated Reg M. According to FINRASEC Regulation M “is designed to prevent manipulation by persons interested in the outcome of an offering, and prohibits activities and conduct that could artificially influence the market for an offered security.”
“If approved by the SEC, (the waiver) would allow us to redeem shares at par value for shareholders who want to redeem them,” McClurg told Bitcoin Magazine.
The move would supposedly help alleviate what may currently be GBTC’s most pressing problem: a whopping 47% discount on its shares compared to the value of the underlying assets it owns.
“Ballouts typically cause a discount to be reduced due to the arbitrage ability of market makers,” the Valkyrie executive added.
McClurg said the company would also reduce the administration fee to 75 basis points, down from the 200 basis points currently charged by Grayscale.
It is unclear if Grayscale has already sought the Reg M exemption, with McClurg telling Bitcoin Magazine that “nothing is stopping Grayscale from doing this itself.” GBTC’s current manager is seeking a conversion of the trust into a spot bitcoin exchange-traded fund, something he says would remove the discount given an ETF’s ability to create and trade shares on demand. He has gone so far as to sue the SEC on the grounds that the regulator allowed the listing of futures-based products and has no reason to deny similar spot offerings. This could apparently help explain the company’s reluctance to apply for the Reg M exemption, as an eventual SEC exemption could reduce the discount to near zero and eliminate its leverage for the ETF move. However, it is not clear if that is the case. Valkyrie would still be looking for the conversion if he were to become GBTC’s manager.
“We would still attempt a conversion, but we would work with regulators for an orderly conversion in due course,” McClurg said.
Find more details of the Valkyrie proposal here.
