As per a recent Bloomberg report, New York-based hedge fund Fir Tree is suing crypto investment firm Grayscale Investments at the Delaware Court of Chancery to obtain information about its flagship Grayscale Bitcoin Trust (GBTC) in order to investigate potential mismanagement and conflicts of interest.
Fir Tree intends to use the data to persuade Grayscale to address the significant discount it trades at relative to the Bitcoin it holds by lowering fees and resuming redemptions. Fir Tree also claimed that shareholder-unfriendly actions had harmed approximately 850,000 Grayscale retail investors.
“That strategy will likely cost years of litigation, millions of dollars in legal fees, countless hours of lost management time, and goodwill with regulators,” Fir Tree’s lawyers said in the complaint. “All the while, Grayscale will continue to collect fees from the trust’s dwindling assets.”
Resume redemptions and lower fees
Fir Tree wants Grayscale to resume redemptions and lower fees for the trust which has $10.7 billion in assets and is the world’s largest publicly traded crypto fund.
It enables U.S. investors to gain exposure to Bitcoin price movement without purchasing the asset itself. Furthermore, the hedge fund wishes to halt Grayscale’s efforts to convert GBTC into an exchange-traded fund (ETF).
GBTC is trading at nearly a record 43% discount to the price of the trust’s underlying Bitcoin and is down nearly 75% this year as a result of Bitcoin’s sharp decline and the collapse of several high-profile crypto firms such as FTX.
Fir Tree intends to use the information it is seeking to put pressure on Grayscale to resume operations, which are not immediately available to investors, and to cut fees from the current 2%.
Since it does not offer a redemption program into fiat or crypto, GBTC holders have few options for exiting their positions other than selling them to another market participant.
Grayscale Investments is part of the Digital Currency Group (DCG), which has struggled since FTX’s demise, with Genesis suspending client withdrawals last month.