February 7, 2023

Fir Tree Capital Management has filed a lawsuit against Grayscale Investments, demanding information that can be used to enforce changes in how it manages its flagship Bitcoin Trust.

According to Bloomberg, a complaint was filed against Grayscale in the Delaware Court of Chancery on Dec. 6 and attempts are being made to have Grayscale reduce its fees, initiate redemptions, and turn over documents related to its relationship with the Digital Currency Group.

The hedge fund also wants to halt 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 about 850,000 private investors were “duped 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 Ycharts data.

Much of the reason is due to the fact that GBTC holders have little to no means of exiting their GBTC positions, other than to sell them to another market participant, as it does not offer a fiat or crypto exchange program.

Fir Tree claims that Grayscale’s redemption bar, which dates back to 2014, is “self-imposed” and claims that Grayscale refuses to buy back shares because that would reduce profits.

The company also wants Grayscale to stop trying to convert the trust into an ETF, which it has repeatedly tried unsuccessfully over several years.

“That 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 attorneys said in the suit. “All the while, Grayscale will continue to collect fees from the trust’s dwindling assets.”

However, Grayscale has maintained that the fund’s conversion into an ETF allows for the creation and repurchase of shares.

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

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

β€œAt Grayscale, our mission is to help investors access the ever-evolving crypto ecosystem through trusted, secure, and transparent investment vehicles. We respect the views of our shareholders and appreciate engaging directly with them on the details of our product structures and business model.”

Related: Grayscale legal officer says Bitcoin ETF lawsuits could take two years

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

Shares in GBTC have been on a steady decline for nearly a year since its peak position of $51.47 per share on Nov. 12, 2021, with a price per share of $8.76 at the time of writing, according to Yahoo Finance.