Fir Tree: Grayscale Potential Tender Offer Is ‘Lip Service’

Grayscale said it plans to stick to efforts to convert its Bitcoin Trust (GBTC) to an ETF before exploring other options

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Blockworks Exclusive art by Axel Rangel modified by Blockworks

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Just two days after Grayscale Investments floated the option of a tender offer for shareholders of its flagship bitcoin trust (GBTC), Fir Tree Partners on Wednesday demanded additional information about how it would work. 

Fir Tree — a long time TradFi hedge fund firm with a sizable GBTC position that has previously sued Grayscale — appears intent on ramping up public pressure against the crypto investment firm. The idea appears to be a bid to force a resolution to the trust’s longstanding trading discount to its underlying spot bitcoins. 

Representatives for Fir Tree called Grayscale CEO Michael Sonnenshein “non-committal” in a statement, urging the company to ramp up liquidity for investors in the near term.

“Grayscale’s recent letter to investors and accompanying media campaign is unfortunately nothing more than management trying to pay lip-service to the idea that they care about their shareholders,” the company said. “If Grayscale management is serious about protecting shareholders and about this contemplated tender offer, then they should immediately provide details on the pricing, funding source, and design of the tender offer.”

Fir Tree’s move is also a rebuttal, of sorts, to Sonnenshein’s letter to investors on Monday. The chief executive in the letter said his company would consider the tender offer — amounting to no more than 20% of the outstanding shares of GBTC — if its bid to convert the trust to an ETF fails. 

Generally, a tender offer is a public solicitation to investors requesting that they tender, or offer up, their shares for sale at a specific price and at a certain time.

Details would be provided when, and if, the tender offer takes place, a spokesperson told Blockworks. The SEC would need to approve the tender offer, Sonnenshein said. 

A Grayscale spokesperson declined to comment. 

GBTC’s lingering discount may be opportunity for institutions 

GBTC was trading at a 47.5% discount to its net asset value (NAV) on Tuesday, according to YCharts.com — down slightly from last week. The $10.7 billion trust, which launched in 2013, started the year trading at a discount of less than half of that figure, or 21%. 

The steepening discount has occurred over a tough span for bitcoin, down about 75% from its all-time high in November 2021.

A good number of deep-pocketed crypto traders, including hedge fund managers, have in recent weeks been placing bets that the deep discount will persist for the foreseeable future, according to an institutional crypto trading source who was granted anonymity to discuss sensitive business dealings. 

Here’s how the now-popular and market-neutral play typically works: You build a short position in either spot bitcoin or GBTC (or both) and set up another leg of the trade by going long GBTC. The idea is to establish a hedge against deteriorating market conditions, while preserving the upside of the discount sticking around.

While the setup isn’t exactly new, institutions have been piling into the setup in droves since FTX’s collapse rattled both prices and volatility, the source said. The latest iteration of the bitcoin trust’s reversion from its underlying spot assets has also been weighed down by abundant selling activity of late, designed to lock in capital losses as a write-off before tax season. 

But it may not last. 

“I do see, going into the new year, [the reversion] reverting to a mean, so to speak,” the source said.

Fir Tree’s lawsuit against Grayscale may take a while

Grayscale’s letter came after Fir Tree filed a lawsuit in Delaware’s Court of Chancery earlier this month to seek more information around “potential mismanagement” of the trust.

Founded in 1994, the New York-based private investment firm manages assets for endowments, foundations, pension funds and sovereign wealth funds. 

The GBTC trust agreement does not currently permit redemptions or repurchases of shares by GBTC. Fir Tree states in the complaint that Grayscale “appears to be maintaining this untenable status quo to enrich itself, its management, and its affiliates.”

It is unclear when Fir Tree became a GBTC shareholder and how many shares the company owns. A spokesperson declined to comment.

Brian Newman, an attorney at law firm Dykema, told Blockworks the suit could unearth “much more information than most trusts would like,” but that the case would likely drag on. 

While some have called on Grayscale to file for Regulation M with the SEC — allowing for a fund to simultaneously create and redeem shares — the company has said an ETF is the more suitable solution.

A Grayscale spokesperson previously told Blockworks the firm remains committed to converting GBTC to an ETF, adding it believes an ETF is the best long-term product structure for the trust. 

Michael Bodley contributed reporting.


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