U.S. Congressman Brad Sherman has sent a letter to Gary Gensler, Chair of the U.S. 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 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 security and in some cases, their life savings, may be at risk and that if the situation is not remedied, they could lose tens of billions of dollars of their savings.
Sherman’s concerns regarding GBTC stem from the fact that GBTC shares currently trade at a ~42% discount to the bitcoins in the trust, and Grayscale has refused to redeem GBTC shares, citing Regulation M’s prohibition on 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 continuously issuing new shares between 2018 and 2021 drove the discount to its net asset value.
Sherman alleges that Grayscale’s actions are 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 the GBTC that investors own. By charging more than four times what their competitors charge, Grayscale was able to bring in $615 million in fees alone in 2021, according to the letter.
Sherman has posed several questions to the SEC related to this matter, including whether Regulation M is a barrier to allowing shareholder redemptions today, whether the SEC is aware of other specific rules and regulations that are a barrier to allowing shareholder redemptions today, and whether it is a matter of concern that Grayscale does not have a single independent director on either its board of directors or audit committee.
In conclusion, Congressman Brad Sherman’s letter to the SEC Chair, Gary Gensler, is raising concerns over the situation of Grayscale Bitcoin Trust (GBTC). Sherman is worried that as many as 850,000 retail investors could lose their retirement security and savings, as they are currently trapped in their GBTC investment due to the actions of GBTC and its parent company, Digital Currency Group. At Bitcoin 2023 in Miami, there will be a shareholders meetup to discuss the next steps that concerned shareholders can take. This aims to be the largest gathering of shareholders since the beginning of the Trust, with more than 30% of shareholders expected to attend.