Billion-Dollar Hedge Fund Bets Vs. Bitcoin And Grayscale

The stress continues to mount on Grayscale with its Bitcoin Belief (GBTC) and guardian firm Digital Foreign money Group. And as Ram Ahluwalia, CEO and co-founder of crypto-native funding advisor Lumida, identified in a current thread, two new characters, Valkyrie Investments and Fir Tree have entered the “Shakespearean drama.”

The motivation of the second, particularly, may be very doubtful. Fir Tree is a hedge fund with about $3 billion in belongings underneath administration (AUM) and lots of of holdings. The SEC 13F filings present that Fir Tree holds First Citizen’s Financial institution, KKR, Comcast, and lots of of different securities. They’re additionally massive buyers in oil and tobacco.

Ahluwalia, due to this fact, raises the query of why Fir Tree, as a worth investor, has an curiosity in GBTC and filed a lawsuit towards Grayscale in early December, particularly because the hedge fund doesn’t personal quite a lot of GBTC.

Fir Tree Capital Administration filed the lawsuit in search of data that might be used to power adjustments to the best way the corporate operates its flagship Bitcoin Belief.

The lawsuit seeks Grayscale to decrease its charges, provoke redemptions, and launch paperwork associated to its relationship with Digital Foreign money Group. As well as, Fir Tree additionally seeks to cease Grayscale’s efforts to transform its Grayscale Bitcoin Belief (GBTC) right into a spot exchange-traded fund (ETF).

A Huge Quick On Bitcoin, Crypto, And Tether?

Ahluwalia hypothesizes that the arguments made within the lawsuit don’t mirror their true motivation. Fir Tree claims the motivation lies with the “finish buyers” resembling “lecturers, firefighters, law enforcement officials, and different public officers” who personal GBTC.

“There’s an even bigger story right here…Be skeptical,” says Ahluwalia, explaining, “Fir Tree is making an even bigger wager towards the crypto ecosystem (USDT, Bitcoin, and many others.) and pushing on all of the softpoints it could discover.”

On this regard, the Chartered Monetary Analyst (CFA) refers to Bloomberg’s revelation that Fir Tree took a big quick place on Tether (USDT) in March 2022. Fir Tree is betting on a break of the USD/USDT peg, to some extent a “financial institution run” by March 2023.

The place has been structured as an “uneven commerce,” which means that draw back danger is low and potential reward is excessive, with the official rationale for the commerce being that “a lot” of the industrial paper backing the token is tied to Chinese language actual property builders, a few of that are in bother.

Additional, the analyst asserts that Fir Tree has recognized three “softpoints” of the Bitcoin and crypto market that the hedge fund can rattle: Grayscale, the USDT bond, and Binance, whereas Fir Tree can’t take any motion concerning the trade, based on Ahluwalia. On GBTC, the analyst notes:

Happily, I don’t see a reputable path to Grayscale Belief unwinding. The Belief is a cashcow and may obtain a non-public valuation from a third celebration purely on cashflows. What Fir Tree is doing is pushing on the free legs of the stool.

With the lawsuit, Fir Tree might be making an attempt to scale back the possibilities of DCG elevating outdoors capital whereas its personal wager nonetheless has about 3 months to run. Additionally it is not clear from the 13F filings whether or not the hedge fund can also be quick Bitcoin or has OTM places on BTC.

Enemy Of My Enemy Is My Buddy Dynamic

Valkyrie, even when with “heroic” intentions, doesn’t make the state of affairs any simpler as they suggest to take over the function of managing GBTC and scale back charges from 2% to 75 foundation factors. As well as, Valkyrie would use Reg M. Each would harm Grayscale’s valuation.

“My opinion is that Fir Tree is trying to harm the likelihood of a VC elevate and push DCG over the sting. […] Fir Tree and Valkyrie are unusual bedfellows. Fir Tree is betting towards Tether. Valkyrie is positioned because the hero for Bitcoin/GBTC holders. This an ‘enemy of my enemy is my good friend’ dynamic”, Ahluwalia says.

For Bitcoin buyers, the unresolved state of affairs round DCG and Grayscale thus stays one of many greatest potential dangers for additional crypto-intrinsic market turmoil. At press time, the BTC worth was at $16,624.