The stress continues to mount on Grayscale with its Bitcoin Trust (GBTC) and dad or mum firm Digital Currency Group. And as Ram Ahluwalia, CEO and co-founder of crypto-native funding advisor Lumida, identified in a latest thread, two new characters, Valkyrie Investments and Fir Tree have entered the “Shakespearean drama.”
The motivation of the second, particularly, could be very doubtful. Fir Tree is a hedge fund with about $3 billion in belongings below administration (AUM) and a whole lot of holdings. The SEC 13F filings present that Fir Tree holds First Citizen’s Bank, KKR, Comcast, and a whole lot of different securities. They are additionally giant buyers in oil and tobacco.
Ahluwalia, subsequently, raises the query of why Fir Tree, as a price investor, has an curiosity in GBTC and filed a lawsuit towards Grayscale in early December, particularly for the reason that hedge fund doesn’t personal loads of GBTC.
Fir Tree Capital Management filed the lawsuit searching for data that could possibly be used to drive adjustments to the way in which the corporate operates its flagship Bitcoin Trust.
The lawsuit seeks Grayscale to decrease its charges, provoke redemptions, and launch paperwork associated to its relationship with Digital Currency Group. In addition, Fir Tree additionally seeks to cease Grayscale’s efforts to transform its Grayscale Bitcoin Trust (GBTC) right into a spot exchange-traded fund (ETF).
A Big Short On Bitcoin, Crypto, And Tether?
Ahluwalia hypothesizes that the arguments made within the lawsuit don’t mirror their true motivation. Fir Tree claims the motivation lies with the “finish buyers” similar to “lecturers, firefighters, law enforcement officials, and different public officers” who personal GBTC.
“There’s a much bigger story right here…Be skeptical,” says Ahluwalia, explaining, “Fir Tree is making a much bigger wager towards the crypto ecosystem (USDT, Bitcoin, and so forth.) and pushing on all of the softpoints it could actually discover.”
In this regard, the Chartered Financial Analyst (CFA) refers to Bloomberg’s revelation that Fir Tree took a big quick place on Tether (USDT) in March 2022. Fir Tree is betting on a break of the USD/USDT peg, to some extent a “financial institution run” by March 2023.
The place has been structured as an “uneven commerce,” which means that draw back danger is low and potential reward is excessive, with the official rationale for the commerce being that “a lot” of the business paper backing the token is tied to Chinese actual property builders, a few of that are in hassle.
Further, the analyst asserts that Fir Tree has recognized three “softpoints” of the Bitcoin and crypto market that the hedge fund can rattle: Grayscale, the USDT bond, and Binance, whereas Fir Tree can’t take any motion concerning the alternate, in line with Ahluwalia. On GBTC, the analyst notes:
Fortunately, I don’t see a reputable path to Grayscale Trust unwinding. The Trust is a cashcow and might obtain a non-public valuation from a third social gathering purely on cashflows. What Fir Tree is doing is pushing on the free legs of the stool.
With the lawsuit, Fir Tree could possibly be attempting to scale back the probabilities of DCG elevating exterior capital whereas its personal wager nonetheless has about 3 months to run. It can also be not clear from the 13F filings whether or not the hedge fund can also be quick Bitcoin or has OTM places on BTC.
Enemy Of My Enemy Is My Friend Dynamic
Valkyrie, even when with “heroic” intentions, doesn’t make the scenario any simpler as they suggest to take over the position of managing GBTC and scale back charges from 2% to 75 foundation factors. In addition, Valkyrie would use Reg M. Both would damage Grayscale’s valuation.
“My opinion is that Fir Tree is trying to harm the likelihood of a VC increase and push DCG over the sting. […] Fir Tree and Valkyrie are unusual bedfellows. Fir Tree is betting towards Tether. Valkyrie is positioned because the hero for Bitcoin/GBTC holders. This an ‘enemy of my enemy is my pal’ dynamic”, Ahluwalia says.
For Bitcoin buyers, the unresolved scenario round DCG and Grayscale thus stays one of many largest potential dangers for additional crypto-intrinsic market turmoil. At press time, the BTC value was at $16,624.
Bitcoin value, 1-day chart
Featured picture from Kanchanara / Unsplash, Chart from TradingView.com