Valkyrie Investments has prepared a proposal to take control of the troubled bitcoin trust GBTC.
“We know that Grayscale has played an important role in the development and growth of the bitcoin ecosystem with the launch of GBTC, and we appreciate the team and the work they have done,” Valkyrie co-founder and CIO Steven McClurg said 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 manage GBTC to ensure that investors are treated fairly.”
McClurg told Bitcoin Magazine that the proposal would be for GBTC shareholders to vote by proxy. If chosen by shareholders, Valkyrie will be the sponsor.
However, the process is not as easy as it seems. As highlighted in the Bloomberg report, “Grayscale filings state that shareholders do not take part in the management or control of the trust, and have limited voting rights. In addition, no amendment to the trust agreement that can materially affect the interests of shareholders can be made with a vote of at least the majority – meaning 50% – of the shares.”
McClurg explained to Bitcoin Magazine that Valkyrie saw the problem, and had planned ahead. He declined to comment on the specifics of the plan, but said it would not be the first time he has pursued such a goal. When it comes to plans for after the eventual takeover, McClurg has laid out.
The first action Valkyrie will take if it becomes the sponsor and manager of GBTC is to “immediately file for a Reg M exemption,” the executive said. Grayscale CEO Michael Sonnenshein told Yahoo Finance earlier this month that the trust that does not allow redemptions is a result of the closure of the US Securities and Exchange Commission (SEC) in 2014, which found GBTC redemptions in violation of Reg M. According to FINRA, the SEC’s Regulation M “is designed to prevent manipulation by individuals with an interest in the results of the offering, and prohibit activities and actions that can artificially influence the market for the security offered.”
“If approved by the SEC, [the exemption] will allow us to redeem shares at par value for shareholders who wish to redeem,” McClurg told Bitcoin Magazine.
The move will help solve what is currently GBTC’s problem: a 47% discount on its shares compared to the value of the underlying assets it holds.
“Redemptions typically cause discounts to narrow due to market makers’ ability to arbitrage,” Valkyrie executives said.
McClurg said the company will also reduce management fees to 75 basis points, down from the 200 basis points currently charged by Grayscale.
It’s unclear whether Grayscale has sought a Reg M exemption, and McClurg told Bitcoin Magazine that “there’s nothing stopping Grayscale from doing this on its own.” GBTC managers are now seeking to convert the trust into a spot bitcoin exchange-traded fund –– which they claim will eliminate the discount due to the ETF’s ability to create and exchange shares on demand. It has gone so far as to sue the SEC on the basis that the regulator allows the listing of futures-based products and has no reason to reject the offering of the same spot. This apparently can help explain the firm reluctance to apply for Reg M exemption, as the eventual exemption from the SEC can reduce the discount to close to zero and kill the influence for the ETF move. It’s not clear what happened, though. Valkyrie will still be working on conversions if they become GBTC managers.
“We will still be testing the conversion, but will work with the regulator for an orderly conversion in due course,” McClurg said.
Find out more details about the Valkyrie proposal here.