Bitcoin investors are planning a major coup

Like the Valkyrie, Osprey has called on Grayscale to withdraw as a sponsor and come forward as a replacement. In an open letter, Osprey CEO Greg King pledged to cut the management fee by 75 percent, seek to immediately implement a redemption program and cooperate with regulators rather than pursue litigation.

The Gran Tree and Osprey lawsuits were described by Jennifer Rosenthal, vice president of communications at Grayscale, as “baseless” and “frivolous” respectively. “We remain steadfast in our belief that the conversion of GBTC to an ETF is the best long-term product structure for investors, and are 100 percent committed to that endeavor,” she says.

As it stands, the various parties are locked in a deadlock; Grayscale says it’s not going anywhere and remains confident in the strength of its case against the SEC, while activists scratch their heads over how to oust the firm.

Meanwhile, the situation threatens to devolve into a mudslinging contest, Parish says, as Grayscale tries to ride out this difficult period.

It’s not necessarily in Grayscale’s best interest to convert to an ETF too quickly, he says, because the recent negative press surrounding DCG and its subsidiaries (the lending arm of one subsidiary, Genesis, filed for bankruptcy in January) is likely to send investors running for exit as soon as possible, taking with them millions of dollars in management fees.

“Grayscale’s whole strategy here is to limit redemptions and then PR, PR, PR. And to fight legal battles on whatever field they have to fight,” Parish claims.

Sonnenshein disputes the idea that enabling redemptions will trigger a customer exodus, arguing that the “regulated, battle-tested” ETF structure will attract an even larger audience and an even larger amount of capital into bitcoin. He also says that it has been the plan to convert the trust into an ETF from the start. “This is something investors want and deserve,” he says.

If the courts were to rule against Grayscale and the company exhausts all remaining legal appeals, Sonnenshein says it would pursue a tender offer in which a portion of shareholders are bought out of their shares at a price set with “investor fairness” in mind.

But RedeemGBTC and Fir Tree do not share Grayscale’s belief in the strength of its case against the SEC, described by the pair as “doomed” and “wasteful” respectively, pointing to the need for an urgent resolution to the situation.

“If we thought Grayscale was going to be successful [in converting GBTC to an ETF], we wouldn’t try to stop it. We just don’t think it’s going to happen – so something has to be done, says Bailey.

Three other shareholders say they believe an ETF is unlikely to be approved while SEC Chairman Gary Gensler remains in charge. (Gensler’s term is set to end in 2026.) The SEC declined to comment.

“The [Grayscale] are going to dig their heels in and fight to the end, but it’s not going to bode well for them, says McClurg. “Financial services are a trust game; once your customers lose faith, you’ll never get them back. In the long run, I think they are finished.”