Grayscale Investments Weighs In on Bitcoin Investment Trust and Bitcoin Cash
Grayscale Investments, LLC, a wholly-owned subsidiary of Digital Currency Group, Inc. and sponsor of the Bitcoin Investment Trust, has announced plans to respond to the possible fork of the Bitcoin blockchain that would result in the creation of a new digital currency in addition to Bitcoin, called Bitcoin Cash.
On or shortly after the 1st of August, 2017, there is a chance that a group of miners and users will adopt a proposed modification to the Bitcoin software that would result in the creation of a digital currency known as Bitcoin Cash. If the proposed modification is not accepted by a vast majority of miners and users, but is nonetheless accepted by a substantial population of participants in the network, it will cause a fork in the blockchain to develop, resulting in two separate cryptocurrencies, as has happened in other networks such as Ethereum, which ked to Ethereum and Ethereum Classic.
Following any potential fork, Greyscale Investments has stated that it expects to cause the Bitcoin Investment Trust to liquidate any Bitcoin Cash associated with the Bitcoin held by the Trust, and to cause the proceeds of such liquidation to be distributed on a pro rata basis to holders of units of the Trust. It is expected that any such distribution would be made only after allowing time for evaluation of the market for Bitcoin Cash and consideration of the manner in which to liquidate such Bitcoin Cash, which may be months after the fork occurs.
As part of the evaluation of the market for Bitcoin Cash, the Greyscale Investments expects to consider, among other factors, whether there are any appropriately regulated exchanges that have listed Bitcoin Cash. In addition, such distribution, if and when it was made, would be to owners who held Trust units on a specified record date, which is anticipated to be the day the fork occurs. The amount of any distribution will be net of expenses of Greyscale Investments and the Trust, including costs associated with liquidation and distribution.
Because of the uncertainty regarding whether Bitcoin Cash will be created, and the timing and method of the creation of Bitcoin Cash, alongside the development of trading markets for Bitcoin Cash, if any, Greyscale Investments can offer no assurance as to whether or when proceeds from the liquidation of any Bitcoin Cash associated with the bitcoin held by the Trust will be distributed. Any such distribution may be delayed or prevented due to technical, regulatory, commercial or other considerations, including security concerns. In addition, the value of Bitcoin Cash may be such that it is determined that a distribution is impracticable given the costs of liquidation and distribution. Greyscale Investments plans to cause any liquidation of Bitcoin Cash and distribution of the proceeds therefrom to be effected in a manner intended to permit the Trust to continue to be treated as a grantor trust for U.S. federal income tax purposes, and expects that any Bitcoin Cash will be segregated from the Trust before its liquidation. Any action to be taken to respond to the creation of Bitcoin Cash will be subject to obtaining any necessary amendments to, or consents under, the trust agreement governing the Bitcoin investment Trust.