Grayscale Investments is the target of a lawsuit brought by hedge fund Fir Tree. To look into “possible mismanagement and conflicts of interest” at its $10.7 billion Bitcoin fund, it is requesting information. The information sought might be used to compel the firm to alter how its flagship Bitcoin Trust—GBTC—is managed.
According to a recent Bloomberg report,
“Fir Tree, which manages $3 billion, wants to use the information to push Grayscale to erase the discount by lowering fees and resuming redemptions, said people familiar with the hedge fund’s plans. The trust has roughly 850,000 retail investors who have been “harmed by Grayscale’s shareholder-unfriendly actions,” the firm said in the complaint.”
Grayscale’s Redemption Bar “Self-Imposed”
Grayscale’s redemption bar, which dates to 2014, was allegedly “self-imposed,” according to Fir Tree. It further stated that the trust could permit investors to withdraw their money without obstruction under the law. However, the firm has stated in regulatory filings that it is unable to provide an “ongoing redemption program.”
The hedge fund further claimed that Grayscale resisted share redemption since doing so would reduce profits. The corporation allegedly sold “an incredible number” of additional shares between 2018 and 2021, according to the lawsuit. It imposed a 2% fee, higher than its rivals, on the market value of its Bitcoin holdings rather than the lower share market price. The firm received $615.4 million in fees last year, according to Fir Tree.
Grayscale’s attempts to turn the trust into an ETF must also be stopped, according to Fir Tree. The firm has often asserted that this is the only method company can legitimately redeem shares. According to a statement sent to Bloomberg by a Grayscale spokesperson through email,
“In 2013, we launched Grayscale Bitcoin Trust (GBTC) to provide investors with access to Bitcoin, and always with the intention of converting it to an ETF when permitted by US regulators. We remain 100% committed to converting GBTC to an ETF, as we strongly believe this is the best long-term product structure for GBTC and its shareholders.”
Since late February, GBTC shares have been trading at a discount. The discount gap was as wide as 43.04% at the time of publication.