Grayscale Investments said the firm would explore new options to return a portion of the Grayscale Bitcoin Trust’s capital to shareholders if it fails to transform the world’s largest bitcoin fund into an exchange-traded fund.

These options could include a tender offer for up to 20% of the outstanding shares of the $10.7bn trust, Grayscale Chief Executive Michael Sonnenshein said in a letter to investors viewed by The Wall Street Journal. A tender offer would make a direct appeal to shareholders to sell — or tender — their shares at a specific price during a certain time.

The Grayscale Bitcoin Trust, known by its ticker symbol GBTC, trades like a closed-end fund, which can often trade at a premium or discount to the value of its holdings. Amid this year’s slump in digital assets, the discount rate has widened substantially. GBTC was trading at a 49% discount relative to the price of the bitcoins it held on 16 December, according to YCharts. Currently, GBTC shares can be created but not redeemed, meaning that investors can only sell their holdings in the open market at a discount. The trust charges a 2% annual fee.

Grayscale has said that converting GBTC into an ETF would help bring its share price to trade in line with its underlying value. Market participants would be able to create and redeem shares of GBTC to ensure that they reflect the underlying value of the bitcoins it holds.

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Sonnenshein’s letter attempts to assuage the fears of GBTC investors following the collapse of crypto exchange FTX last month, which has spread contagion across the industry. Grayscale’s parent company, Digital Currency Group, and affiliate firm, crypto lender Genesis Global Capital, are among those ensnared in the FTX meltdown. Genesis paused redemptions and loan originations after it couldn’t meet client withdrawal requests, and DCG said it owes Genesis around $1.7bn through two loans.

The Securities and Exchange Commission has so far rejected Grayscale and others’ spot bitcoin ETF applications on the grounds that such products are vulnerable to fraud and market manipulation. The regulator has only allowed ETFs tracking bitcoin futures to come to market.

In June, Grayscale sued the SEC; the legal battle is ongoing.

Grayscale doesn’t have a specific timeline for when it would explore options beyond the ETF conversion, but it is prepared for all scenarios, Sonnenshein said in an interview with the Journal. Last year, Marlton, an event-driven hedge fund focused on closed-end funds, said in an open letter to Grayscale that a tender offer could help narrow, if not eliminate, the GBTC discount.

Grayscale said the potential pursuit of a tender offer is dependent on relief from the SEC and shareholder approval. The company added that it may consider doing additional tender offers if the first such attempt is successful.

While DCG, Genesis and other affiliated entities collectively own nearly 10% of the total shares outstanding of GBTC, they are only permitted to sell up to 1% of the total shares outstanding into the public markets every three months under Rule 144 of the Securities Exchange Act of 1933, according to Sonnenshein.

DCG and Genesis aren’t counterparties or service providers for GBTC or any of Grayscale’s other products, he said in the letter.

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If Grayscale is unable to return capital to GBTC shareholders via a tender offer or ETF, the company currently plans to continue operating GBTC without a continuing redemption program until it succeeds in converting it into a spot bitcoin ETF, Sonnenshein said in the letter.

“We are as committed as ever to converting GBTC to an ETF. It is what we are putting the full resources of the firm behind,” Sonnenshein said in the interview.

Write to Vicky Ge Huang at

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