Due to its affiliations with both Digital Currency Group (DCG) and Genesis Global Capital, investors have been watching Grayscale Investments and its actions closely since the collapse of FTX. While the company has done its best to assuage investors that its own operations are isolated from its sister company, with all assets sound and accounted for, this hasn't stopped public scrutiny and fear. Combined with its ongoing fight against the SEC to see its Grayscale Bitcoin Fund (GBTC) converted to an ETF, and its reasonable to say that the company has had its hands full as of late. With this in mind, Grayscale CEO, Michael Sonnenshein, reached out to its investors today addressing these pressing matters, and its projected path forward.
One of the first things addressed by Grayscale in its communication with investors are a series of points which it feels recent events have only reinforced. These include,
- A need for spot Bitcoin ETFs
- A need for stronger regulations
- FTX was the product of greed and corruption – not a failure of crypto itself
Grayscale is clear in its belief that, “We should not, however, conflate the actions of a few individuals and organizations with Bitcoin or Ethereum, the underlying blockchain technology, or smart contracts and decentralized finance applications.”
With regards to on-going concerns, Grayscale once again was explicit in that neither Genesis nor DCG are, “…counterparties or service providers for GBTC or any of [Grayscales] other products, and as such, do not impact [Grayscales] operations.” While the pair may own a small stake in Grayscale itself, the assets which it holds are solely owned by GBTC and its shareholders.
Beyond separating itself from various affiliates, Grayscale highlights the stringent security measures it must take to offer the GBTC fund. Such measures include, but are not limited to, third party audits, registration under the Securities Exchange Act, and on-going reporting with the SEC itself.
As it stands, shares in GBTC are trading at a massive discount (49%). This means that the value of its underlying product is worth significantly more on the open market. Part of this is due to the fact that the fund is close-ended, not allowing for investors to exit their positions. A reason for this is because the fund was structured from day-1 with the intent on being converted to an ETF over time – a plan which has clearly hit a snag with the SEC denying scores of applications to date. Its current structuring was never meant to be a long-term solution.
With its battle against the SEC on-going, those at Grayscale have now indicated that, while committed to staying the path in 2023, they are planning for every possible outcome – win or lose. One scenario that it is floating would see Grayscale buy back up to 20% of shares from investors if it does not prevail in transforming the fund to an ETF.
In its ongoing fight against the SEC, Grayscale has routinely noted that it makes no sense to allow for Bitcoin Futures to be offered, and not a spot market ETF – if the underlying product is sound enough to speculate on with futures contracts, it stands to reason that it should be good enough to invest in through an ETF.
Furthermore, Grayscale believes that if successful in converting the fund to an ETF, it will greatly benefit its almost 1M U.S. investors by closing the 49% discount at which GBTC is currently trading, by allowing for the sale of shares at market value.
Grayscale is quick to note that while this option may be on the table if its fails in converting its fund, it would still be contingent on approval from both the SEC and shareholders alike.