Investor letter: Grayscale CEO Michael Sonnenshein details options if the Grayscale Bitcoin Trust's ETF plans fail, including a tender for outstanding shares
Michael Sonnenshein attempts to assuage fears of Grayscale Bitcoin Trust investors after collapse of FTX
Context & Ripple Effects
Grayscale has been fighting on two fronts since mid-2022: it sued the SEC after the agency rejected its bid to convert the Bitcoin Trust into an ETF, and then watched FTX's collapse hammer confidence in the trust that holds the world's largest bitcoin stash. With the fund trading at a deep discount and holders unable to redeem, CEO Michael Sonnenshein's investor letter is an attempt to show there is a floor under the structure even if the ETF route fails.
The letter lands amid escalating legal pressure: FTX's estate has sued Grayscale, Sonnenshein, DCG and Barry Silbert over more than $1.3B in management fees, and a US court has already ordered the SEC to re-review the rejection. A public commitment to a share tender gives nervous holders a concrete exit mechanism while the litigation plays out.
First-order effects
- GBTC shareholders gain a named downside path — a tender for outstanding shares — which directly targets the discount-to-NAV fear driving selling pressure right now.
- Sonnenshein shifts negotiating leverage toward the SEC: if the agency keeps blocking conversion, Grayscale is signaling it will shrink or wind down the trust rather than leave capital locked up.
Second-order effects
- A tender would hand large distressed holders — most notably the FTX bankruptcy estate — a liquidity event at NAV instead of forcing them to dump discounted shares into the market, easing the exact outflow dynamic seen when FTX later sold 22M GBTC shares worth nearly $1B.
- DCG, whose finances are entangled with the trust via Silbert's empire, faces a structure where the fee stream FTX's lawsuit targets gets smaller if shares are retired through tenders.
Third-order effects
- If courts force the SEC to treat bitcoin products even-handedly — as the review-order ruling suggests — closed-end trust wrappers like GBTC become structurally untenable, pushing the industry toward redeemable ETF formats as the default vehicle.
- The episode hardens a governance template where large holders use litigation and redemption threats to police management fees on passive crypto vehicles.
The trend: Crypto fund structures are being forced from locked-up trusts into redeemable, ETF-style vehicles by a combination of court pressure on the SEC and holder-led redemption threats.