Fir Tree fund sues Grayscale in attempt to force changes to Bitcoin Trust

Fir Tree Capital Management has filed a lawsuit against Grayscale Investments demanding information that could be used to force changes to the way it operates its flagship Bitcoin Trust.

According to Bloomberg, a complaint was filed against Grayscale in the Delaware Court of Chancery on December 6, seeking to have Grayscale lower its fees, start redemptions and hand over documents related to its relationship with Digital Currency Group.

The hedge fund also wants to stop Grayscale’s efforts to convert its $10.7 billion Grayscale Bitcoin Trust (GBTC) into a spot exchange-traded fund (ETF).

In its complaint, the New York-based hedge fund said around 850,000 retail investors had been “damaged by Grayscale’s shareholder-unfriendly actions”.

Shares in Grayscale’s Bitcoin trust are currently trading at a near-record 43% discount to the net asset value (NAV) of the underlying digital asset, Bitcoin, according to data from Ycharts.

Much of the reason is due to the fact that GBTC holders have little or no option to exit their GBTC positions except to sell them to another market participant, as it does not offer a fiat or crypto redemption program.

Fir Tree claims that Grayscale’s redemption bar, which dates back to 2014, is “self-imposed”, arguing that Grayscale is refusing to redeem shares as it would cut into profits.

The firm also wants Grayscale to stop trying to convert the trust into an ETF, which it has tried to do repeatedly over several years without success.

“This 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.”

However, Grayscale has maintained that the funds’ conversion to an ETF is what will allow it to create and redeem shares.

A Grayscale spokesperson told Cointelegraph that it has always planned to convert GBTC to an ETF when permitted by US regulators.

“We remain 100% committed to converting GBTC to an ETF, as we strongly believe this is the best long-term product structure for GBTC and its shareholders.”

“At Grayscale, our mission is to help investors access the ever-evolving crypto ecosystem through familiar, secure and transparent investment vehicles. We respect the views of our shareholders, and appreciate engaging directly with them on the details of our product structure and operating model .”

Related: Grayscale Lawyer Says Bitcoin ETF Litigation Could Take Two Years

The gap between GBTC shares and Bitcoin widened to nearly 50% in the weeks following the collapse of now-bankrupt crypto exchange FTX.

Shares of GBTC have been gradually declining for almost a year since the peak position of $51.47 per share on November 12, 2021, with the price per share at $8.76 at the time of writing, according to Yahoo Finance.