Hedge funds have accused the struggling Grayscale BTC Trust (GBTC) of mismanagement and are seeking information on the financial health of Grayscale’s owner, Digital Currency Group (DCG).
Earlier this week, the Fartree family of hedge funds filed a complaint in Delaware against Grayscale Investments and its GBTC trust, accusing them of “inappropriate management of Grayscale’s trust and liquidity issues within its digital currency group. SERIOUS QUESTIONS ABOUT COMFORTABLE REPORTS AND ITS AFFILIATES.”
Fir Tree believes it has a “clear and unambiguous information right” under GBTC’s operating contract, but Grayscale is “obstructing” Fir Tree’s request for a response. “The era of accountability in digital asset markets is over,” said Fir Tree, wanting to know: “What does grayscale hide?”
GBTC was launched in 2013 as a means of providing exposure to BTC to institutional investors and seasoned, well-financed individuals without the hassle of personally acquiring and storing BTC. However, due to the sharp drop in the overall digital asset market this year, GBTC’s share price is on an upward trend.
Since March 2021, when GBTC’s share price crossed $50, GBTC has been trading at a significant discount to its net asset value (NAV). The stock closed at $8.19 on Thursday after falling to $8.11. This reflects a discount of nearly 50%, a record high (or low, depending on how you look at it). Similarly, there are ugly discounts on other grayscale trusts, including Ethereum-based trusts currently trading at around $6.20, starting at around $46 in November 2021.
Fir Tree’s complaint cites a YouTube interview with Rayhaneh Sharif-Askary, Grayscale’s head of IR, in which she said Grayscale “brings discounts to GBTC’s NAV” by “flooding the market with supply.” I admit that She justified that GBTC is “a victim of its own success”.
Grayscale investors have limited options in that they cannot redeem shares in the trust unless Grayscale allows it. And Grayscale has not granted such a request for years.Fir Tree, citing a 2017 GBTC shareholder notice, said that the trust would “not accept a set order for any reason.” and “suspend or reject redemption orders”, and shareholders were told that “this change will be made without the affirmative vote of a majority of shareholders.” ‘
Grayscale, on the other hand, charges investors an annual membership fee of 2% of total assets under management. This reflects the market value of digital assets, not the Trust’s share price. Farr he thinks the tree gives Grayscale an incentive to keep unlucky shareholders bleeding slowly.
DCG boss Barry Silbert recently tried to reassure DCG investors despite a growing number of investment vehicles on the brink of bankruptcy. Grayscale’s administrative costs of over $615 million in 2021 alone are believed to account for two-thirds of DCG’s total revenues, and the fir tree is responsible for the “worrying about liquidity issues” within DCG. We believe that “reporting” deserves more public scrutiny.
it’s a family matter
Based on Grayscale’s unwillingness to redeem its shares “unless legally prohibited,” Fartree said that it would seek to “enrich itself, its management, and its affiliates at the expense of its shareholders.” We are maintaining an untenable status quo.”
Silbert has been criticized for having previously served as CEO/Chairman of both DCG and Grayscale, as well as serving on Grayscale’s audit committee. That committee is made up of “fully insiders”, including three Grayscale executives and her DCG president, along with Grayscale’s board of directors. Additionally, Grayscale nonchalantly acknowledges its lack of formal procedures for handling potential conflicts of interest.
Fir Tree has accused GBTC of selling “a huge number of new shares” between 2018 and 2021. This was done in part by a television advertising campaign personally promoted on social media by Silbert and his CEO of Grayscale, Michael Sonnenshain. Fir Tree claims this #DropGold campaign is aimed at retail investors who can buy his GBTC shares on the secondary market (which GBTC was prohibited from selling directly).
Fir Tree also claims that DCG owns or is affiliated with entities, including the fact that approximately 644,000 BTC tokens that make up GBTC are (allegedly) stored in a DCG-owned offshoot of the Coinbase exchange. I also note that grayscale depends on the host. pile. Then there is Genesis Global, his wholly-owned DCG platform that until recently was GBTC’s “sole authorized participant, marketer and distributor.”
Fir Tree notes that Genesis, the only entity authorized to issue new GBTC shares, will “donate billions of dollars of underlying digital assets to fund the creation of new Grayscale shares by Genesis. It seems to have been lent,” he said. That led to his $2.3 billion loan defaulting on “cryptocurrency” hedge fund Three Arrows Capital (3AC) before declaring bankruptcy this spring.
Fir Tree summarizes this inbreeding scenario as follows: They have every financial incentive to stop the Trust from starting a redemption program. This is because the more shares we have outstanding, the more collateral we have available to secure the loans we offer our customers.
ETF off
While refusing to redeem, Grayscale began lobbying the U.S. Securities and Exchange Commission (SEC) to allow GBTC to be converted into an exchange-traded fund (ETF). The SEC has dismissed Grayscale’s “futile ETF conversion campaign,” prompting Grayscale to appeal. It’s a strategy Fir Tree claims will require “years of litigation, millions of dollars in legal fees, countless lost administrative hours, and goodwill with regulators.” doing. Meanwhile, GBTC continues to collect 2% annually “from the trust’s dwindling assets”.
Fir Tree counts “many” of its investors as GBTC shareholders, and Fir Tree said it would “further investigate the mismanagement of Grayscale’s trusts and [and] Evaluate disturbing reports of liquidity problems at DCG and its affiliates. ” Grayscale has not yet provided a “substantial response” to the fir tree information request.
Grayscale has publicly responded to Fir Tree’s allegations by stating that it “remains 100% committed to converting GBTC into an ETF.”
Observers believe that Fir Tree successfully persuaded a Delaware court to produce the requested information for Grayscale. If so, the contagion that continues to plague major digital asset companies could become even more viral.
short
In the digital asset community, Fir Tree is perhaps best known for his courage to take short positions in Tether’s USDT stablecoin.because we say “brave” tether skeptic I have long argued that betting on the USDT losing its 1:1 peg to the US dollar is like playing Russian roulette with 6 bullets in a revolver.
The general theory is that in response to major short positions, Tether switches on a “money printer” and pumps USDT. specific exchange Long enough to liquidate short positions. The newly printed USDT (which may or may not have been “bought” with real cash) can then be returned to Tether, who will split the liquidation profits with the exchange.
Paolo Ardoino, Tether’s sweaty CTO and one of only two office workers who dares to speak publicly, occasionally Individual dared to short USDTfor example, demonstrating the kind of confidence usually reserved for poker players who can see their opponent’s hole cards (some of Tether’s biggest customers know a little bit about it).
One of the largest beneficiaries of Tether’s USDT stablecoin was Alameda Research, a recently bankrupt market maker on the recently bankrupt FTX exchange. Both FTX and Alameda are owned by Sam Bankman-Fried, and FTX routinely owns Invite People to Short Tether.
Ironically, SBF appeared to short-circuit the tether just before the FTX/Alameda implosion reached terminal velocity. At the time, SBF denied he was. “Doing weird things you see on Twitter” However, he seems to have done everything he could to create some desperately needed liquidity, including implicating his former partners in crime.
At least some observers believe Tether may be the real target of grayscale complaints of fir trees. The purported strategy is for already volatile such as Grayscale/DCG, in the clear hope that further collapse of major digital asset entities will weaken Tether’s role as the griffling grease that keeps the “crypto” wheel moving. is to destabilize a valid entity. And if the tether falls, the entire rotting building collapses completely. It’s almost time.
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