In a move dubbed a longshot by institutional crypto investors and market-makers, crypto asset manager Valkyrie Investments has stepped in as the latest potential savior of Grayscale Investment’s embattled bitcoin trust.
Valkyrie’s proposal, issued on Wednesday, touted the purported success of its own — significantly smaller — bitcoin trust in making the case for taking over Grayscale’s GBTC as its new “sponsor and manager,” according to the public letter attributed to the firm’s chief executive.
The first step of any potential takeover appears to be the launch of a new hedge fund, Valkyrie Opportunistic Fund. Valkyrie CEO Steven McClurg positioned the launch of the opportunistic vehicle at the latest market entrant looking to capitalize on the “massive discount” between GBTC’s net asset value (NAV) and its underlying spot bitcoin holdings.
McClurg’s move presents one fresh alternative to Grayscale’s attempts to narrow that gap. The firm, led by CEO Michael Sonnenshein, has been engaged in a legal battle with the SEC in a bid to convert the trust to an ETF — which the US securities regulator has batted down.
“The goal here is for [GBTC] to be open to redemptions, and if [Grayscale] won’t do it, and if the shareholders want the change of manager, we are proposing that we could be that manager,” McClurg told Blockworks.
Sonnenshein’s firm, the largest public bitcoin owner in the world, has so far rebuffed other investor proposals, including filing for a Regulation M with the SEC, which would introduce redemptions for its investors.
In his own public letter, Sonnenshein entertained the notion of rendering a tender offer to GBTC holders, another mechanism to increase liquidity. A spokesperson for Grayscale did not immediately return a request for comment, and a Valkyrie spokesperson was not immediately available for comment.
Two sources familiar with the operations of both firms, and granted anonymity to discuss sensitive business dealings, cast doubt on Valkyrie’s ability to pull off the ambitious bid — even with GBTC now trading at a discount of -47.33% through Thursday’s close.
Deep-pocketed asset managers, including longtime TradFi hedge fund firm Fir Tree Capital, have gotten in on the push for solutions, too.
The Justin Sun connection
Justin Sun, a Chinese national and the founder of the Tron blockchain, was described as the owner of the “vast majority” of assets held by Valkyrie Digital Assets in a recent report from crypto news outlet CoinDesk.
According to the report, Sun held “90% of money at Valkyrie’s largest division, Valkyrie Digital Assets LLC”. Blockworks has not seen the document which CoinDesk used to source its report. CoinDesk reported the total amount of Justin Sun’s assets held as being in excess of $580 million in August.
Sun has also earned a reputation as a publicity-seeking entrepreneur who frequently inserts himself into trending conversations in the cryptocurrency world.
Valkyrie’s proposal includes a discount on fees
Valkyrie’s own product has had no liquidity issues since its inception at the start of 2021, the company said.
McClurg, who also serves as Valkyrie’s chief investment officer, touted his team’s experience with close-ended funds in the letter, as a differentiator from the traditional finance world in terms of taking over GBTC.
The proposal outlines a number of mechanisms to “improve upon the current management of GBTC,” including: filing a Regulation M with the SEC to facilitate redemptions from the trust’s investors; slashing its fees to a “more equitable level;” and trying to set up a redemption mechanism that would offer both bitcoin and cash options to GBTC investors.
The proposed fees would clock in at 75 basis points, a steep discount from the trust’s current 2% charge.
An institutional crypto trading source familiar with the matter said Valkyrie appears to be “going for headlines” with the surprise move — mainly because of the firm’s paltry assets under management versus the industry goliath Grayscale.Via its fund management arm exclusively, Valkyrie Funds, the investment manager oversaw a scant $51.1 million of discretionary assets as of September, the most recent data available.
“They have .0001 % chance of doing anything,” the source said.
Updated Dec. 29th, 2022 at 4:12 PM ET: Additional context and quotes throughout.
Updated Dec. 29th, 2022 at 6:54 PM ET: Quote from Steven McClurg.
Get the day’s top crypto news and insights delivered to your inbox every evening. Subscribe to Blockworks’ free newsletter now.
Can’t wait? Get our news the fastest way possible. Join us on Telegram.