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

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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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