Toronto, Ontario–(Newsfile Corp. – December 22, 2022) – 3iQ strongly believes that many of GBTC’s shareholders are long-term investors in bitcoin. This statement is presented in the spirit of collaboration among the regulated investment community to achieve the goal of remedying GBTC’s discount and restoring both investor value and investor confidence during a time when they are sorely needed.
3iQ has been working with regulators since 2014 to bring commercially innovative and compliant digital asset products and solutions to global markets. We did this with a fiduciary obligation and at great expense to prioritize an investment structure with integrity that has served our clients over time.
The December 6th court filing from Fir Tree Capital Management (Fir Tree), as well as 3iQ’s own research, indicates that Grayscale has limited the rights of shareholders over time, starting with the revocation of redemption rights in 2014.
Fir Tree’s complaint is a “books and records” action seeking documentation to advance transparency and hopefully resolve this unfair discount by reinstating the redemption feature or instituting a conversion feature. Prior to Fir Tree’s filing, 3iQ engaged Grayscale with suggestions on how to collapse the discount, but to no avail, and bringing about this appeal.
It appears that Grayscale has taken notice of Fir Tree’s complaint. In a letter to investors, Grayscale’s CEO offered to explore a partial tender for GBTC shares. But with few details other than no redemption feature and a stated reliance on SEC approval, Grayscale’s ability to deliver value remains undefined at best.
The Fir Tree filing brought attention to critical components which 3iQ fully supports:
- Grayscale engagement with affiliates brings potential conflicts of interest – Per page 25 of the filing document, “Grayscale has engaged DCG affiliates for nearly all of its essential services, including (i) Genesis, which is a wholly owned subsidiary of DCG.”
- Shareholder redemption option not fully explored – Per the filing, “Grayscale’s disclosures failed to acknowledge, however, that it has never been required to obtain ‘regulatory approval’ to operate a redemption program, provided that it is not creating and redeeming shares at the same time.” Therefore, the decision NOT to offer a redemption mechanism is Grayscale’s alone.
- Grayscale is not delivering on its investment objective for the trust – As stated in the Trust document, “GBTC’s investment objective is for the value of its Shares (based on BTC per Share) to reflect the value of Bitcoin held by the Trust, less fees and expenses.” This failure has caused investors significant harm over the last 12-months with potential for the discount to widen further.
- GBTC shareholders are paying fees based on a valuation that investors cannot realize – Fees paid to Grayscale are based on Net Asset Value (NAV), which is almost 2x greater than the market value that investors would realize in a secondary market sale.
Regarding Fir Tree’s plea to have Grayscale restore the redemption feature, 3iQ’s current regulated structure can help remedy GBTC’s discount and restore value to investors.
3iQ Proposes a Market Solution for GBTC Shareholders
We encourage Grayscale to offer a conversion feature for GBTC that allows the physical movement of bitcoin to one of our current solutions. This would minimize the market impact of an immediate and wholescale redemption without burdening the courts or the taxpayer. A path forward to remedy the situation would include some or all the following attributes:
- Initiate a tender offer for the conversion of GBTC for a new or existing regulated bitcoin vehicle with redemption rights
- New or existing regulated bitcoin vehicles that facilitate cash or in-kind redemptions at Net Asset Value per Unit (NAVPU), less fees and expenses
As a registered digital asset manager, 3iQ appreciates and understands the need to restore confidence among institutions and investors that believed GBTC was a long-term, cost-effective, and secure, physically backed investment vehicle. Grayscale has been unresponsive to our outreach, however, 3iQ now calls on our clients, supporters, and peers in the regulated investment community to join this broader appeal. Together, we can help remedy GBTC’s discount and restore investor value and investor confidence.
Founded in 2012, 3iQ is one of world’s leading digital asset investment fund managers. 3iQ was the first Canadian investment fund manager to offer a public bitcoin investment fund, The Bitcoin Fund (TSX: QBTC) (TSX: QBTC.U), and a public ether investment fund, The Ether Fund (TSX: QETH.UN) (TSX: QETH.U). More recently, 3iQ launched the 3iQ CoinShares Bitcoin ETF (TSX: BTCQ) (TSX: BTCQ.U) and the 3iQ CoinShares Ether ETF (TSX: ETHQ) (TSX: ETHQ.U). 3iQ offers investors convenient and familiar investment products to gain exposure to digital assets.
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