Fir Tree Capital Management is suing Grayscale Investments for information to investigate potential mismanagement and conflicts of interest at its $10.7 billion Bitcoin fund.
The Grayscale Bitcoin Trust closed Monday at a 43% discount to the value of the Bitcoin it holds, in part because the firm issued many shares in the past few years and didn’t redeem any of them, according to a complaint filed Tuesday in Delaware Chancery Court.
The trust’s publicly traded shares have plunged about 75% this year, as the industry deals with the fallout from last month’s bankruptcy of Sam Bankman-Fried’s crypto exchange FTX and a tumble in Bitcoin and other cryptocurrencies.
Fir Tree, which manages $3 billion, wants to use the information to push Grayscale to erase the discount by lowering fees and resuming redemptions, said people familiar with the hedge fund’s plans. The trust has roughly 850,000 retail investors who have been “harmed by Grayscale’s shareholder-unfriendly actions,” the firm said in the complaint.
A representative for Grayscale didn’t immediately reply to a message seeking comment.
Grayscale is owned by Barry Silbert’s Digital Currency Group, which also runs Genesis Global Trading, a crypto lender and broker that halted withdrawals in November — fueling questions about the health of its parent.
Fir Tree alleges that Grayscale’s redemption bar, which dates from 2014, is “self-imposed.” The hedge fund said there’s no legal reason that stops the trust from allowing investors to exit, as long as it complies with securities laws. Grayscale has said in regulatory filings it can’t offer an “ongoing redemption program.”
The hedge fund claims Grayscale refuses to redeem shares because doing so would cut into profits. The firm sold “an immense number” of new shares between 2018 and 2021, according to the lawsuit. It charges 2% — higher than competitors such as Osprey Bitcoin Trust — on the market value of its Bitcoin holdings rather than the lower market price of the shares. Last year, Grayscale collected $615.4 million in fees, Fir Tree said.
Internal Files
Grayscale Bitcoin Trust boomed in popularity during crypto’s bull run in 2020 and 2021, quickly becoming the world’s biggest digital-assets fund as investors looked for access to Bitcoin without having to buy the coins directly. That seemingly insatiable demand boosted the trust’s price to a persistent premium above the value of its underlying Bitcoin, fueling one of the industry’s most popular arbitrage trades.
The complaint is a “books and records” action, demanding documents that could be used in court to get Grayscale to take action to close the discount. Delaware judges often grant such requests.