US Congressman Brad Sherman sent a letter to Gary Gensler, Chair of the US Securities and Exchange Commission (SEC), regarding the situation of Grayscale Bitcoin Trust (GBTC).
According to Sherman, as many as 850,000 retail investors, including some who used individual retirement account funds, are now stuck with their GBTC investments due to the actions of GBTC and its parent company, Digital Currency Group (DCG). Sherman estimates that investors’ retirement security and in some cases, their life savings, may be at risk and that if the situation is not resolved, they could lose tens of billions of dollars in their savings. .
Sherman’s concerns about GBTC stem from the fact that GBTC shares are currently trading at a ~42% discount to the trust’s bitcoins, and Grayscale is refusing to redeem GBTC shares, citing the ban on Regulation M on the simultaneous sale and redemption of the same security. Grayscale’s Head of Investor Relations, Rayhanch Sharif-Askary, admitted that the company’s flooding of the GBTC market by continuously issuing new shares between 2018 and 2021 led to a discount in its net asset value.
Sherman alleged that Grayscale’s actions were motivated by a desire to increase assets under management, regardless of the impact on GBTC’s retail investors. Grayscale charges users an annual 2% fee based on the actual value of bitcoin, not the value of GBTC owned by investors. By charging more than four times what their competitors charge, Grayscale was able to bring in $615 million in fees in 2021 alone, according to the letter.
Sherman has several questions with the SEC related to this matter, including whether Regulation M is an obstacle to the authorization of redemption by current shareholders, whether the SEC is aware of other specific rules and regulations that an obstacle to the approval of the current shareholders’ redemption, and if it is a matter of concern that Grayscale does not have an independent director on either its board of directors or audit committee.
In conclusion, Congressman Brad Sherman’s letter to the SEC Chair, Gary Gensler, raises concerns about the situation of Grayscale Bitcoin Trust (GBTC). Sherman is concerned that as many as 850,000 retail investors may lose their retirement security and savings, as they are now trapped in their GBTC investment due to the actions of GBTC and its parent company, the Digital Currency Group. At Bitcoin 2023 in Miami, there will be a meeting of shareholders to discuss the next steps that the relevant shareholders can take. It aims to be the largest gathering of shareholders since the inception of the Trust, with more than 30% of shareholders expected to attend.