Digital currency investing and cryptocurrency asset management Grayscale Investments is being sued by New York-based hedge fund Fir Tree Capital Management for "potential mismanagement and conflicts of interest" at the company's flagship Bitcoin BTC/USD fund, Bloomberg reported.
GBTC is a financial tool that enables investors to access Bitcoin without actually purchasing and holding the asset. Cryptocurrency exchange Coinbase is the custodian of the Bitcoin backing GBTC.
The lawsuit comes as the Grayscale Bitcoin Trust GBTC's discount plunged to a record-low discount of more than 43% from the underlying Bitcoin value on Tuesday.
According to Fir Tree, this is in part because Grayscale issued "an immense number" of units between 2018 and 2021 without giving investors any other way to get out of their positions besides selling shares to other investors.
Steady Decline Of GBTC Premiums
GBTC once traded at a high premium, but since February of last year, the trust's shares have been steadily dropping, reaching a 40% discount last month.
The redemption bar introduced by Grayscale in 2014, according to Fir Tree, is "self-imposed."
The hedge fund claims thatm as long as the trust complies with securities laws, there is no legal justification to prevent GBTC investors from turning their positions into currency.
In its case, Fir Tree, which oversees $3 billion assets, said that Grayscale's "shareholder-unfriendly actions" had "harmed" about 850,000 retail investors.
The complaint, which was submitted on Tuesday in the Delaware Chancery Court, is a "books and records" action that seeks information that might be used to persuade Grayscale to cancel the discount by reducing the annual 2% management fee and restarting redemptions.
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