Will The World’s Largest Bitcoin Fund Drive BTC To Historic Crash? Grayscale investments sued by hedge funds
- Fir Tree Capital Management criticizes Grayscale with a lawsuit to prove mismanagement.
- Grayscale has responded that it remains committed to providing investors with access to Bitcoin.
The Bitcoin (BTC) market is facing a renewed threat of collapse due to uncertainty surrounding the largest Bitcoin fund with over $10.8 billion worth of BTC under management, Grayscale Bitcoin Trust (GBTC).
Fir Tree Capital Management, a New York-based hedge fund, has filed a lawsuit against Grayscale Investment for providing information about GBTC. According to a Bloomberg report, Fir Tree believes the information it is seeking will reveal potential mismanagement of the GBTC fund and a conflict of interest between Grayscale and parent company Digital Currency Group (DCG).
Fir Tree makes several allegations in its filing with the Delaware Court of Chancery, including that Grayscale’s redemption bar, which dates back to 2014, is “self-imposed” and a ploy to keep profits up as share redemptions would cut into profits.
Spruce Tree Capital case
The $3 billion asset manager points out that Grayscale sold “a huge number” of new shares between 2018 and 2021 while charging 2% fees on the market value of its Bitcoin holdings. This strategy earned the Grayscale manager $615.4 million in fees last year, while shares in the fund have plunged to over 43% of their NAV currently.
Meanwhile, Fir Tree notes in the lawsuit that it wants to use the information it requires to prevent Grayscale from converting GBTC to an exchange-traded fund (ETF). It stated that Grayscale’s efforts to convert the fund into an ETF will only result in a waste of time and resources. the filing said.
That strategy will likely cost years of litigation, millions of dollars in legal fees, countless hours of lost management time and goodwill with regulators. All the while, Grayscale will continue to collect fees from the trust’s dwindling assets,
Fir Tree stated that about 850,000 of its retail investors have been “damaged by Grayscale’s shareholder-unfriendly actions.” The firm adds that the files on the alleged interdependence of DCG’s businesses are also important, especially given recent events in the crypto ecosystem, including the rapid collapse of FTX and Three Arrows Capital.
Grayscale reiterates the commitment to convert GBTC to an ETF
Shades of Gray doesn’t appear to have been rattled by the lawsuit’s request, which according to Bloomberg is likely to be granted because it’s a “books and records” case. In a response to the media on the matter, a spokesperson for Grayscale stated that the asset manager remains “100% committed to converting GBTC to an ETF” as it believes it is the best long-term product structure for the fund.
Grayscale’s applications to convert the fund into an ETF have so far been stymied by the US Securities and Exchange Commission (SEC). Grayscale went on to sue the SEC for failing to apply consistent treatment to similar investment vehicles following the latest denial of its application to convert GBTC to an ETF.
CNBC also reports that Grayscale argues that the SEC’s action is arbitrary and capricious and in violation of the Administrative Procedure Act and the Securities Exchange Act of 1934.
