Valkyrie Offers to Manage GBTC Grayscale Cryptocurrency

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Valkyrie Investments has submitted a proposal to take over the reins of struggling 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 the co-founder and Valkyrie CIO, Steven McClurg. in a statement posted on the company’s website. “However, in light of recent events involving Grayscale and its family of affiliates, it’s time for a change. Valkyrie is the best company to manage GBTC to ensure its investors are treated fairly.”

McClurg told Bitcoin Magazine that the proposal would be for current GBTC shareholders to vote by proxy. If chosen by the shareholders, Valkyrie would become the sponsor.

However, the process is not as simple as it seems. As a report by Bloomberg points out, “the grayscale documents indicate that the shareholders have no participation in the management or control of the trust and have limited voting rights. In addition, no modification of the trust agreement likely to materially affect the interests of shareholders cannot be done with a vote of at least a majority – that is, 50% – of the shares.”

McClurg explained to Bitcoin Magazine that Valkyrie is aware of these issues and has planned ahead. He declined to comment on specifics of what that plan might entail, but hinted it wouldn’t be the first time they’ve achieved such a goal. As for the plans after a possible takeover, McClurg laid it out.

The first action Valkyrie would take in the event that she became GBTC’s sponsor and director would be to “immediately file for a Reg M exemption,” the exec explained. Grayscale CEO Michael Sonnenshein told Yahoo Finance earlier this month that the trust not allowing redemptions is the result of a 2014 U.S. Securities and Exchange Commission (SEC) shutdown. , which found that GBTC’s takeovers were in violation of Reg M. According to FINRA, the SEC’s Regulation M “is designed to prevent manipulation by persons with an interest in the outcome of an offering, and prohibits activities and behaviors that could artificially influence the market for an offered security”.

“If approved by the SEC, [the exemption] would allow us to redeem shares at face value for shareholders who wish to redeem,” McClurg told Bitcoin Magazine.

The move would allegedly help alleviate what may currently be GBTC’s most pressing issue: a whopping 47% reduction in its shares relative to the value of the underlying assets held.

“Buybacks typically result in a lower discount due to market makers’ ability to arbitrate,” the Valkyrie executive added.

McClurg said the company would also cut management fees to 75 basis points from the 200 basis points currently charged by Grayscale.

It’s unclear if Grayscale has applied for the Reg M exemption yet, and McClurg told Bitcoin Magazine that “there’s nothing stopping Grayscale from doing it themselves.” GBTC’s current manager is looking to convert the trust into a cash bitcoin exchange-traded fund — which he says would eliminate the discount given an ETF’s ability to create and redeem shares on demand. He went so far as to sue the SEC on the grounds that the regulator has allowed futures products to be listed and has no grounds to deny similar spot offers. This could apparently help explain the firm’s reluctance to apply for the Reg M exemption, as a possible SEC exemption could reduce the discount to near zero and kill its leverage for the ETF movement. It’s unclear if this is the case, however. Valkyrie would still pursue the conversion if she became GBTC’s manager.

“We would still attempt a conversion, but would work with regulators for an orderly conversion in due time,” McClurg said.

Find more details on Valkyrie’s proposal here.

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