Valkyrie Unveils Proposal for Grayscale’s Troubled Bitcoin Trust (GBTC)

(Bloomberg) — Valkyrie Investments is out with a proposal for a much larger rival product: to become the new sponsor and manager of the crypto industry’s largest fund, the Grayscale Bitcoin trust.

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The Nashville, Tennessee-based asset manager, which oversees roughly $180 million, on Friday announced the launch of the Valkyrie Opportunistic Fund, which seeks to take advantage of the massive discount in Grayscale Investments’ $10.5 billion product (GBTC). The Valkyrie fund will be increasing its holdings of GBTC, allowing the company to realize “the true value of the underlying Bitcoin for our investors,” which it says is a goal it will actively pursue on their behalf, according to the company.

“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 that they have done,” said Steven McClurg, co-founder and CIO of Valkyrie Investments, in a letter posted on the firm’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 its investors are treated fairly.”

Still, such a move could be a long shot as Grayscale filings state that shareholders take no part in the management or control of the trust, and have limited voting rights. In addition, no amendments to the trust agreement that could materially affect the interests of shareholders can be made without a vote of at least a majority — meaning 50% — of the shares.

GBTC is currently trading roughly 50% below the value of the Bitcoin it holds. The crux of the issue is GBTC’s structure: While new shares can be created, they can’t be destroyed as demand for the trust’s underlying Bitcoin cools, resulting in a discount to net asset value. Grayscale attempted to convert GBTC into an exchange-traded fund, a wrapper that allows for share redemptions. The US Securities and Exchange Commission rejected the move in June, spurring Grayscale to file a lawsuit against the agency within hours.

Grayscale did not immediately return an email requesting comment.

Valkyrie says it’s proposing to facilitate GBTC redemptions at net-asset value for investors through a Regulation M filing. It’s also looking to lower fees to 75 basis points from the trust’s current 200-basis-point tag. And it’s seeing redemptions in both Bitcoin and cash for investors.

McClurg, who authored Friday’s letter, has previously engineered or been involved with closed-end fund takeovers or restructurings in his prior role as a managing director at Guggenheim Partners.

Valkyrie says its own Bitcoin trust has operated with daily liquidity since its inception in January 2021. The company also oversees some crypto-centric exchange-traded funds, including the Valkyrie Bitcoin Strategy ETF (ticker BTF).

(Updates to add a dropped word in the fourth paragraph.)