Grayscale Investments, one of the largest asset management firms in the digital currency ecosystem, plans to refund its investors if its ETF project fails.
As reported by the Wall Street Journal (WSJ), this action will be taken if the company, a subsidiary of Digital Currency Group (DCG), fails to convince the U.S. Securities and Exchange Commission (SEC) to approve the conversion of its Grayscale Bitcoin Trust (GBTC) product into a full-fledged Bitcoin exchange-traded fund (ETF).
According to the WSJ article, the redemption will come with options that will include a tender for up to 20% of the outstanding shares of the GBTC product. Currently, the trust is worth as much as $10.7 billion, according to figures cited by the company’s CEO Michael Sonnenshein.
The Grayscale Bitcoin Trust has currently lost 49% of its net asset value (NAV), which shows just how badly the shares have been battered in recent months. Grayscale, alongside some key asset managers, is one of the main purveyors of the Bitcoin Exchange Fund revolution in the United States.
On several occasions, the SEC thwarted Grayscale’s attempts to get a Bitcoin ETF product approved. After several months of waiting, the regulator rejected its application to turn the GBTC product into an ETF, citing a lack of regulatory oversight and inappropriate market maturity.
Grayscale wasn’t satisfied with the SEC’s feedback, and within hours, the company filed a lawsuit against the commission. It even went so far as to hire Donald B. Verrilli Jr. as part of its legal team. Donald was one of the Obama administration’s top solicitors, and with his experience and knowledge of the law, Grayscale is confident that he can strengthen its team to win the SEC in court.
“It is critical that Grayscale has the strongest legal minds to work on our GBTC to ETF application, and we are thrilled to have Verrilli join our outstanding legal team“, said a Grayscale spokesperson at the time.
While little is known about its fight with the SEC, Grayscale is already preparing for future action if it loses the battle.
Grayscale’s problems go beyond the ETF push
As the digital currency ecosystem experiences the liquidity turbulence it has since the beginning of the year, Grayscale and its parent company are duly sharing much of the pressure.
Genesis Trading, another DCG subsidiary, is owed more than $900 million by Gemini customers, a financial upheaval that puts the company on the verge of bankruptcy. Genesis’ stress was induced by the collapse of the FTX Derivatives Exchange, and the platform revealed that bankruptcy may become inevitable if it is unable to get a cash infusion to bolster its reserves.
With Grayscale and DCG thus strained, GBTC’s transition to Bitcoin ETF may not be their immediate concern.