Investor concern is growing around Grayscale’s GBTC product which has been trading at a substantial discount to its underlying net asset value.
Investors in Grayscale’s Bitcoin Trust are concerned that the company’s gated product will hurt clients, as the discount between GBTC and the net asset value (NAV) of Grayscale’s Bitcoin holdings widens to about 46%.
Investors have urged the digital asset manager to offer lower administration fees and allow clients to redeem GBTC shares.
Grayscale Faces Hedge Fund Complaints
Investment firm Fir Tree Capital Management and cryptocurrency mutual fund manager 3iQ have joined the growing chorus of investors saying that Grayscale needs to move quickly to help restore investor confidence in cryptocurrencies.
Fir Tree criticized an apparent voluntary decision by the asset manager to have its fund closed, restricting clients’ ability to profit through redemptions.
Currently, only Grayscale can delete or create GBTC shares through periodic redemptions and private placements. GBTC shares have fallen 75% since the beginning of 2022.
Fir Tree has also asked the Delaware Chancery Court to investigate Grayscale’s alleged mismanagement of client funds.
Founded in 2013, Grayscale’s 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, taking advantage of the 2017 bull market that saw Bitcoin peak at around $19,400 in late December 2017.
Hedge Fund Rejects ETF Argument
According to Fir Tree, Grayscale faces minimal legal barriers to changing the status of its fund to restore the imbalance between supply and demand. Restoring this imbalance would reduce the current discount between GBTC and the value of Grayscale’s underlying Bitcoin asset.
Furthermore, Fir Tree suggested that Grayscale’s reluctance was motivated by a potential loss of profit if investors were allowed to redeem GBTC shares. Grayscale charges a 2% administration fee for the administration of its trust.
Grayscale has also claimed that the only legal way to introduce redemptions would be to convert GBTC into an exchange-traded fund (ETF). An ETF would track the price of Bitcoin directly, and reduce the discount by allowing investor discretion in redeeming shares.
Grayscale has been embroiled in a court battle with the US Securities and Exchange Commission after the agency rejected its initial application for the conversion.
Earlier this month, CEO Michael Sonnenshein said that the company may issue a public offer for 20% of GBTC’s outstanding shares, to help return capital to investors. The asset management company later rejected the idea of an “ongoing redemption program,” after Fir Tree’s complaint.
Adding to investor concerns, Grayscale’s sister company Genesis Trading recently halted client withdrawals and loan origination from its crypto lending arm, Genesis Global Capital.
Grayscale has yet to respond to 3iQ’s suggestions to allow customers to redeem GBTC for physical BTC. Earlier this month, the investment fund suggested that Grayscale issue a takeover bid to convert GBTC shares into a vehicle that allows for trades at Bitcoin’s NAV.
By Audy Castaneda
