- Fir Tree Capital Management slams Grayscale with a lawsuit, to prove mismanagement.
- Grayscale has responded that it remains committed to providing investors access to Bitcoin.
The Bitcoin (BTC) market faces renewed threat of collapse emerging from uncertainty around the biggest Bitcoin fund with over $10.8 billion worth of BTC under management, the Grayscale Bitcoin Trust (GBTC).
Fir Tree Capital Management, a New York-based hedge fund, has filed a lawsuit against Grayscale Investment to provide information about GBTC. Per 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 its parent company Digital Currency Group (DCG).
Fir Tree makes several allegations in the filing made at the Delaware Court of Chancery including that Grayscale’s redemption bar, which dates back to 2014, is “self-imposed” and a ploy to keep its profits up as redeeming shares would cut into profits.
Fir Tree Capital case
The $3 billion asset manager points out that Grayscale sold “an immense 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 of the fund have plunged to over 43% of their NAV at present.
Meanwhile, Fir Tree notes in the lawsuit that it wants to use the information it is demanding to bar Grayscale from converting GBTC into an exchange-traded fund (ETF). It stated that Grayscale’s efforts to convert the fund to an ETF will only lead to wasted 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 around 850,000 of its retail investors have been “harmed by Grayscale’s shareholder-unfriendly actions.” The firm adds that the files about the alleged interdependency between DCG’s businesses are also important, especially because of recent events in the crypto ecosystem including the rapid collapse of FTX and Three Arrows Capital.
Grayscale reiterates commitment to converting GBTC to an ETF
Grayscale does not seem to have been rattled by the lawsuit’s request which according to Bloomberg is likely to be granted as it is a “books and records” case. In a response to the media outlet on the matter, a spokesperson for Grayscale stated that the asset manager is still “100% committed to converting GBTC to an ETF” as it believes it is the best long-term product structure for the fund.
Grayscale’s filings to convert the fund to an ETF have so far been getting twatted by the U.S. Securities and Exchange Commission (SEC). Grayscale proceeded to sue the SEC for failing to apply consistent treatment to similar investment vehicles following the last rejection of its application to convert GBTC to an ETF.
CNBC also reports that Grayscale is arguing that the SEC’s action is arbitrary and capricious and in violation of the Administrative Procedure Act and Securities Exchange Act of 1934.