Trading at a significant discount to its value, Grayscale’s GBTC product is causing concern among investors.
To address this issue, investors are calling on Grayscale to lower management fees and allow customers to buy back GBTC shares.
Gray in confusion
Investment firms Fir Tree Capital Management and 3iQ said Grayscale needs to act quickly to restore investor confidence in the cryptocurrency. Similarly, Fir Tree believes that “the decision to close the fund and limit clients’ ability to profit from fees is voluntary.”
Currently, only Grayscale can delete or create GBTC shares through periodic payments and private placements. Note that GBTC shares are down 75% since the beginning of 2022.
Fir Tree Capital Management also asked a Delaware court to investigate Grayscale’s mismanagement of client funds.
Founded in 2013, Grayscale’s Bitcoin Fund has $10.8 million in assets under management. From September 2016 to October 2017, the total amount invested in the fund increased from $100 million to $1 billion. This amount increased during the bull market of 2017, which brought the price of Bitcoin to $19,400 towards the end of December 2017.
Grayscale wants to convert GBTC to ETF
Legally, Grayscale should have no trouble changing the status of its fund to address the imbalance between supply and demand. This will reduce the current discount between GBTC and the net value of its BTC holdings. According to Fir Tree, Grayscale is unwilling to allow GBTC share buybacks for fear of losing profits. Similarly, the company charges a 2% fee for managing its fund.
Grayscale also claimed that the only legal way to allow payments was to convert GBTC into an exchange-traded fund (ETF). This ETF will directly track the price of Bitcoin and reduce the discount by allowing investors to buy back shares. However, Securities and Exchange Commission The US (SEC) rejected the initial request to convert the fund into an ETF.
Grayscale CEO Michael Sonnenshein said earlier this month that the company may launch a tender offer for 20% of GBTC’s outstanding shares. This is to return the investment to the investors. However, the company rejected the idea of a “spread buyback program” proposed by Fir Tree.
For his part, Alan Austin, director of the Litecoin Fund, believes that the 20% offer will not be enough to compensate a large part of investors. If the ETF application is not approved in time, Grayscale should make a larger takeover bid, he said.
Meanwhile, other experts and investors are calling for the mutual fund to eliminate annual management fees.
Genesis bankruptcy worries investors
Grayscale’s sister company, Genesis Trading, recently suspended withdrawals and lending, fueling investor concern. Indeed, the collapse of cryptocurrency exchange FTX has dealt a major blow to the financial health of Genesis and Grayscale’s parent company, Digital Currency Group (DGC).
While Genesis denies all bankruptcy rumors, cryptocurrency analyst David Bailey recommends DCG CEO Barry Silbert use Grayscale’s fee as collateral to bail out Genesis. However, such a decision would reduce the chances of the GBTC fund becoming an ETF.
Earlier this month, investment fund 3iQ proposed to Grayscale to open a tender offer to convert its GBTC shares into a vehicle that would allow Bitcoin to be redeemed at its net asset value. However, the company has not yet responded to 3iQ’s request.
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