Grayscale Makes Strategic Move Amid TAO’s 38% Plunge

After Covenant AI’s departure, Bittensor’s TAO token plunged by 38%. In a surprising turn, Grayscale has made its largest investment shift in a single asset. This raises questions about the future trajectory of the token.

The exit of Covenant AI from Bittensor wasn’t discreet. The team, associated with Subnet 3, divested approximately $10 million in TAO and alpha tokens, subsequently accusing co-founder Const of orchestrating what they termed “decentralized theatre.” This uproar led to a dramatic 27% decline in TAO’s value within hours, erasing nearly $900 million from its market capitalization. Notably, there were significant outflows, exceeding $70 million, over several consecutive days.

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This significant downturn captured widespread attention, yet an equally pivotal development unfolded in the background. Just three days prior to Covenant AI’s controversial exit, Grayscale adjusted its AI fund, increasing TAO’s representation to 43.06%. This adjustment is noted as the largest single reallocation in the fund’s history. Analysts speculate whether Grayscale had advanced insights into the unfolding events or conducted independent assessments indicating the token’s resilience despite the surrounding turmoil.

Additionally, Grayscale submitted an S-1 Amendment for a spot TAO ETF on NYSE Arca on April 2, coinciding with Bitwise’s similar filing for a TAO strategy ETF. The decision from the SEC is anticipated by August 2026, though analysts like Karamata2_2 highlight that market movements could occur before official approval, as seen with Bitcoin and Ethereum.

Despite the recent chaos, approximately 70% of TAO’s supply remains staked, demonstrating a level of confidence among investors. Karamata2_2 emphasized this point, noting that this figure persisted even amidst the heavy spot outflows.

The community is also focusing on a new protocol proposal known as BIT-0011, introduced by Const. This initiative would mandate subnet founders and stakers to lock their alpha tokens over intervals of 30 days, establishing a system where the most committed stakers gain ownership. This approach aims to mitigate power concentration among individual users and enhance stability by linking ownership directly to a staked economic commitment.

As Karamata2_2 pointed out, this mechanism could make alpha tokens more appealing to institutional investors, particularly with ETF applications already pending with the SEC.

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Amid all this, Bittensor’s operational activities remain robust. Recent analyses suggest a price of approximately $249 for TAO, although the short-term momentum appears weak. Nevertheless, the underlying subnet infrastructure continues to function effectively. Reports indicate that Chutes AI is managing 14.39% of daily emissions, processing over 50 billion tokens a day, while executing a revenue-funded buyback.

Furthermore, companies like Targon Compute and GeneralTensor have recently achieved significant funding milestones, showcasing the ongoing growth and investment in the Bittensor ecosystem. With the active subnet count at 128 and plans for expansion to 256, the landscape is evolving rapidly.

Karamata2_2 has identified a crucial demand zone between $218 and $240, which needs to hold for the upcoming catalysts to take effect. Accumulation at this price point indicates potential investor confidence moving forward.

The developments surrounding TAO, Grayscale’s strategic actions, and the community’s adaptation will be key factors to observe as the situation unfolds, impacting both current stakeholders and potential future investors.