Investors Worried About Bitcoin Trust Grayscale

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Investors at Grayscales Bitcoin Trust are concerned that the company’s closed-ended product could hurt clients, as the discount between GBTC and the net asset value (NAV) of Grayscale’s Bitcoin holdings widens to around 46%.

Investors have urged the digital asset manager to offer reduced administration fees and allow clients to redeem GBTC shares.

Grayscale Faces Hedge Fund Complaints

Investment firm Fir Tree Capital Management and crypto investment fund manager 3iQ have joined the growing chorus of investors who say Grayscale must act quickly to help restore investor confidence in crypto. Fir Tree criticized an apparently voluntary decision by the asset manager to close its fund, limiting clients’ ability to make profits through redemptions.

Currently, only Grayscale can delete or create GBTC shares through periodic redemptions and private placements. GBTC shares have fallen 75% since the start of 2022.

GBTC/USD | Source: YCharts

Fir Tree also asked the Delaware Chancery Court to investigate allegations of mishandling of customer funds by Grayscales.

Founded in 2013, Grayscales Bitcoin Trust has $10.8 million in assets under management. Investment in the fund grew from $100 million to $1 billion between September 2016 and October 2017, in the 2017 bull market which saw Bitcoin peak at around $19,400 in late December 2017.

Hedge fund rejects ETF argument

According to Fir Tree, Grayscale faces minimal legal hurdles to change the status of its fund to redress the imbalance between supply and demand. Restoring this imbalance would reduce the current discount between GBTC and the grayscales underlying the value of the Bitcoin asset. Additionally, Fir Tree suggested that Grayscales’ reluctance was driven by a potential loss of profit if investors were allowed to redeem GBTC shares. Grayscale charges a 2% administration fee for administering its trust.

Grayscale also claimed that the only legal way to introduce redemptions would be to convert GBTC into an exchange-traded fund (ETF). An ETF would directly track the price of Bitcoin and reduce the discount by allowing investors to buy back shares at will. Grayscale has been locked in a legal battle with the United States Securities and Exchange Commission after the agency denied its initial conversion request.

Earlier this month, CEO Michael Sonnenshein said the company may launch a tender offer for 20% of GBTC’s outstanding shares to help return capital to investors. The asset management firm later dismissed the idea of ​​an ongoing buyback program after Fir Trees complained.

Litecoin Foundation director Alan Austin said a 20% supply was insufficient to help most investors. Instead, he said, Grayscale would have to make a larger takeover bid if the ETF application was not approved by a specific date.

So if no ETF approval, then only a 20% takeover bid? How does this help the majority of cardholders? If you are truly committed to a cash ETF, why not demonstrate it with a takeover bid of more than 20% if ETF approval does not occur by a certain date?

— Alan Austin (@alangustin) December 19, 2022

Others pointed out that Grayscale should consider removing its annual administration fee.

In the interest of serving your customers and since GTBC has not held up well (shameful discount to spot price), Greyscale may want to reduce the annual fee to 0.2%, which is comparable to a Vanguard fee. Best wishes for getting a spot ETF.

— redhawk622 (@redhawk622) December 19, 2022

Can you please respond regarding the reduction or elimination of your 2% fee. I will sell my shares and just buy the bitcoin for cash if you don’t resolve this issue.

— Chappy Sigalos (@ChappySinclair2) December 19, 2022 Potential Genesis insolvency weighs on investors

Compounding investor concerns, Grayscale’s sister company Genesis Trading recently suspended client withdrawals and loan originations from its crypto lending arm Genesis Global Capital. These suspensions came as the company suffered from the contagion effects of FTX’s collapse. Both Genesis and Grayscale fall under the Digital Currency Group (DCG).

While Genesis has denied the insolvency claims, Bitcoin evangelist David Bailey has suggested that DCG CEO Barry Silbert could pay Grayscale’s fee as collateral to bail out Genesis. Such an arrangement would reduce the chances of a conversion into a GBTC ETF.

GBTC holders should understand that if Barry gets a bailout on the back of grayscale fees, there will never be an ETF conversion or reg m relief. GBTC’s terminal value will be zero as it plunders 2% of trust assets every year.

— David Bailey https://redeemGBTC.com (@DavidFBailey) December 18, 2022

Grayscale has yet to respond to 3iQ’s suggestions for allowing customers to exchange GBTC for physical bitcoin. Earlier this month, the investment fund suggested that Grayscale launch a tender offer to convert GBTC shares into a vehicle allowing redemptions at Bitcoin NAV.

To be[In]Latest Bitcoin (BTC) analysis from Cryptos, click here.

Disclaimer

BeInCrypto has reached out to a company or individual involved in the story for an official statement on recent developments, but has yet to receive a response.

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