GBTC Investors Fume Over SEC Redemption Inquiries

Key Points:

• U.S. Congressman Brad Sherman asks SEC if Grayscale Bitcoin Trust investors can redeem assets from the investment company.
• The decision of Grayscale to issue more GBTC shares played a significant role in the shares trading at over 40% discount to its net asset value.
• Grayscale has denied investors’ request to allow redemptions, citing Regulation M. Sherman posed several questions to the SEC about Regulation M and whether it was still a barrier to shareholder redemptions.

U.S. Congressman Brad Sherman wrote a letter addressed to SEC Chair Gary Gensler, inquiring about whether Grayscale Bitcoin Trust investors (GBTC) can redeem their assets from the investment company.

In the letter, Sherman expressed concerns over the fact that Grayscale may have prioritized profits over the interests of over 850,000 retail investors whose assets are currently trapped in GBTC. As a result, Sherman believes that the SEC needs to step in and protect the interests of these investors.

Grayscale’s decision to issue more GBTC shares is believed to have played a significant role in the shares trading at a discount to its net asset value. According to ycharts data, the discount has narrowed to 39.76% as of press time. This action has created concerns for thousands of GBTC investors who are worried about the safety of their investments.

Sherman has posed several questions to the SEC regarding Grayscale’s actions. He has inquired about Regulation M and whether it is still a barrier to shareholder redemptions. His other questions are related to Grayscale’s lack of an independent director on its board and whether its 2% Bitcoin-based fee is high.

Grayscale had denied investors’ request for it to allow redemptions, citing Regulation M, which prohibits companies from simultaneous sales and redemption of the same security. However, according to Sherman, this decision has caused concerns for thousands of GBTC investors, who are worried about the safety and storage difficulties that come with owning cryptocurrencies directly.

Sherman has requested that the financial regulator answer his questions before May 15. The letter has generated mixed opinions from the crypto community, with some describing it as a welcome development. However, several others criticized Sherman and considered the letter another sign of FUD — citing his previous anti-crypto posture.

Sherman had previously described Bitcoin holders as tax evaders and has maintained a strong anti-crypto rhetoric in his interventions about the space. Despite criticism, Sherman believes that an SEC intervention is necessary for investor protection.

Meanwhile, the letter presents another headache for Grayscale. The firm is currently battling the SEC over its refusal to approve the conversion of its BTC trust into a spot ETF. Furthermore, its parent company Digital Currency Group is in a financial mess due to one of its subsidiaries — Genesis — which filed for bankruptcy on Jan. 19.

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