Replies to post #89 on Grayscale Bitcoin Trust (GBTC)

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7. From BIT’s inception and without limitation, the PPM established that SecondMarket was permitted to redeem shares (purchased in its capacity as BIT’s AP and for its own proprietary account). During the period November 4, 2013 through September 4, 2014, BIT purchased a total of 6,479 BIT shares from SecondMarket in connection with redemptions made by SecondMarket.

Shareholder Redemptions

8. BIT shares purchased by anyone other than an AP had limited liquidity. As explained in a footnote in the investor deck, liquidity was limited due to the fact that neither BIT nor its offering of shares are registered with the Commission and at the time, there was no public trading market for BIT shares. Nevertheless, BIT intended to offer liquidity for shares held less than one year through some undetermined mechanism. The investor deck stated that liquidity for shares is “to commence no later than March 2014.” Beginning in November 2013, SecondMarket received requests for liquidity from shareholders. In response to those requests, BIT sought and received legal advice from outside counsel regarding the development of a shareholder redemption program.

9. On March 19, 2014, BIT announced to shareholders that it would implement a shareholder redemption program for shares redeemed within one year of purchase. Under this program, shareholders could request redemptions; however, SecondMarket had sole discretion to set and thereby limit the number of shareholders’ shares redeemed during each month. On March 19, 2014, BIT also announced that it had begun the process of applying to qualify BIT shares that have been held for a minimum of one year for public trading on the OTCQX, and it anticipated that the shares would qualify for public trading during the fourth quarter of 2014.

10. On April 1, 2014, BIT, via SecondMarket, began accepting orders to redeem shares from BIT shareholders. During the period April 2, 2014 through September 4, 2014, SecondMarket, in its capacity as BIT’s AP, purchased a total of 85,721 BIT shares in connection with redemptions made by BIT shareholders. SecondMarket earned a total of $51,650.11 in fees in connection with these shareholder redemptions.

11. In September 2014, the Commission notified SecondMarket of potential
violations of Regulation M by the operation of the shareholder redemption program. On October 28, 2014, in response to the Commission staff’s investigation, BIT announced to shareholders that it had suspended its shareholder redemption program.

OTC strikes again