US Congressman Brad Sherman has sent a letter to Gary Gensler, Chairman of the US Securities and Exchange Commission (SEC), regarding the status of the Grayscale Bitcoin Trust (GBTC).
According to ShermanAs many as 850,000 retail investors, including some who used IRA funds, are currently trapped in their GBTC investments due to the actions of GBTC and its parent company, Digital Currency Group (DCG). Sherman estimates that these investors’ retirement insurance and, in some cases, their life savings, could be at risk and that if the situation is not fixed, they could lose tens of billions of dollars in their savings.
Sherman’s concerns about GBTC stem from the fact that GBTC shares currently trade at approximately a 42% discount to bitcoins in the trust, and Grayscale has refused to redeem GBTC shares, citing Regulation M’s prohibition of simultaneous sales and redemptions of the same security. Grayscale’s head of investor relations, Rayhanch Sharif-Askary, admitted that the company’s flooding of the market with GBTC by constantly issuing new shares between 2018 and 2021 resulted in a discount to its net asset value.
Sherman claims that Grayscale’s actions are driven by a desire to increase assets under management, regardless of the impact on retail investors in GBTC. Grayscale charges users a 2% annual fee based on the actual value of Bitcoin, not the value of GBTC held by investors. By charging more than four times what their competitors charge, Grayscale managed to bring in $615 million in fees alone in 2021, according to the letter.
Sherman asked the SEC several questions regarding this issue, including whether Regulation M is a barrier to allowing shareholder redemptions today, and whether the SEC is aware of other specific rules and regulations that are a barrier to allowing shareholder redemptions. Shareholders today, and whether it is a matter of concern that Grayscale does not have a single independent director either on its board or on the audit committee.
In closing, Congressman Brad Sherman’s letter to SEC Chairman Gary Gensler raised concerns about the status of the Grayscale Bitcoin Trust (GBTC). Sherman is concerned that as many as 850,000 retail investors could lose their retirement insurance and savings, as they are currently trapped in their GBTC investments due to the actions of GBTC and its parent company, Digital Currency Group. At Bitcoin 2023 in Miami, there will be a meeting of shareholders to discuss the next steps that interested shareholders can take. This is intended to be the largest shareholder gathering since the fund’s inception, with more than 30% of shareholders expected to attend.