Grayscale is Being Sued by Hedge Fund, but Why?

The recent updates related to Grayscale Investments seems the firm is not in a good situation. As per the Bloomberg report, Fir Tree Capital Management, hedge fund, sued Grayscale Investments.

The reason for the suing came out as the hedge fund asks for information to investigate potential mismanagement and Billion of interest at its $10.7 Billion Grayscale Bitcoin Trust (GBTC.)

Grayscale Investments was founded in 2013 while its parent organisation is a venture capital firm, Digital Currency Group. It also runs Genesis Global Trading, a crypto lender and broker.

The Complaint Against Grayscale

However, on Monday the Grayscale Bitcoin Trust closed at a 43% discount to the value of the Bitcoin it holds. The filed complaint in Delaware Chancery Court states that GBTC has issued many shares in recent years whereas it did not redeem any of them.

Although, after the recent collapse of one of the biggest crypto exchanges, FTX and the price drop of most of the cryptocurrencies plunged GBTC publicly shares around 75% in this year.

The New York hedge funds reportedly manages $3 Billion. While according to the people familiar with Fir Tree’s plants added that they wants to use the information to push Grayscale to erase the discount by lowering fees and resuming redemptions. The firm mentioned in its complaint that GBTC has roughly 850,000 retail investors who have been “harmed by Grayscale’s shareholders-unfriendly actions.”

Fir Tree reported that Grayscale’s redemption bar is “self-imposed,” that was dated from 2014. It also added that they did not find any legal reason that may stop the trust from letting the investors exit, as long as it follows with securities laws. Grayscale already mentioned in regulatory filings that it can’t offer an “ongoing redemption program.”

Fir Tree claimed the refusal by Grayscale to redeem shares as doing so would cut into profits. The lawsuit states, the Grayscale sold “an immense number” of new shares in between 2018 to 2021 and charges 2% on the market value of its Bitcoin holdings instead the lower market price of the shares. It must be noted that the charges were higher as compared to the rivals like Osprey Bitcoin Trust. In the previous year, Grayscale collected $615.4 Million in fees.

Grayscale’s Statement

Through an email statement, a spokesperson of Grayscale said “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,” as mentioned in the email statement.

Notably, the share price of GBTC dropped from 40.10 USD to 8.76 USD in one year.

Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.

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