Fir Tree Provides Update on GBTC Litigation and Comments on Grayscale’s Continued Refusal to Conduct a Tender Offer

Fir Tree Obtains Agreement from Grayscale to Produce GBTC Documents

Fir Tree Reaffirms That Grayscale Can and Should Conduct a Tender Offer

NEW YORK--(BUSINESS WIRE)--Fir Tree Partners (“Fir Tree” or “we”), a meaningful shareholder of the Grayscale Bitcoin Trust (“GBTC”), today announced it has reached an agreement with Grayscale Investments (together with GBTC, “Grayscale”) and has issued the below statements regarding Grayscale’s continued refusal to conduct a tender offer that would unlock value for GBTC shareholders.

The agreement resolves a lawsuit Fir Tree filed in the Delaware Court of Chancery in December 2022 to seek documents and information from Grayscale on potential mismanagement of and conflicts of interest at GBTC. Fir Tree’s lawsuit highlighted concerns about Grayscale’s refusal to allow redemptions despite the lack of any relevant regulatory restrictions, GBTC’s extensive conflicts of interest and lack of independent oversight, and its campaign to convert GBTC into an ETF.

Under the terms of the agreement, without conceding anything, Grayscale has agreed to voluntarily produce certain books and records in response to Fir Tree’s demand and, in consideration, Fir Tree has agreed to dismiss its books-and-records litigation against Grayscale.

Grayscale Fails to Address Fir Tree’s Concerns on GBTC Structure, Unavailability of Redemptions

“Fir Tree is pleased that Grayscale is finally providing access to information that shareholders are entitled to receive under the GBTC Trust Agreement and Delaware law. However, we are disappointed that Grayscale management refused to comply with Fir Tree’s information rights for months and has still failed to address our continued concerns about GBTC’s structure and the unavailability of redemptions. Once Grayscale provides Fir Tree with the GBTC documents that it has agreed to produce under this agreement, we will be able to further investigate Grayscale in order to determine our appropriate next steps, which may include filing additional litigation against Grayscale, Digital Currency Group (DCG), and their respective directors, officers, and advisors, or others who should be held accountable for destroying billions of dollars of GBTC’s market value.”

Fir Tree Proposes a Simple Win-Win Solution for GBTC

“Over the last eight months, Grayscale has repeatedly rejected Fir Tree’s suggestion that it permit redemptions of outstanding GBTC shares so that shareholders may recover some portion of their investment. We continue to believe this would be by far the easiest solution for shareholders to recoup the billions in value in GBTC that DCG and its affiliates have managed to wipe out.

However, it does not have to be this way. We believe there is a simple win-win solution involving the Grayscale Bitcoin Trust that begins to address Fir Tree’s concerns while also providing hundreds of millions of dollars in immediate liquidity to Grayscale and DCG.

Earlier this year, in March 2023, after Grayscale repeatedly rejected the easiest and most straightforward pathway to remedy the egregious harm to investors, Fir Tree proposed another solution: that Grayscale conduct a tender offer for a meaningful percentage of outstanding GBTC shares.”

The basic construct that Fir Tree proposed was as follows:

• Grayscale announces a tender offer for a significant number of outstanding shares;
• The tender offer is at a fixed percentage of NAV (X%) of each share tendered on the specified date on which shares are tendered;
• Following any necessary amendments to the GBTC Trust Agreement, which could be obtained in conjunction with the tender offer, Grayscale would acquire the shares tendered at the percentage of NAV offered and retain the difference from NAV as of that date (100% - X%);
• The proposed tender offer would be open to all GBTC shareholders including DCG, Genesis and any other Grayscale or DCG affiliates; and
• Grayscale would be permitted, but not obligated, to conduct future periodic tender offers under a similar construct.

The Time is Now for Grayscale and DCG to Facilitate GBTC Share Redemptions

“Unfortunately, Grayscale and DCG rejected our proposal and continued to refuse to allow redemptions all while GBTC’s discount to NAV grew and DCG’s financial situation deteriorated. Recently, DCG reportedly failed to make a $630 million loan payment that was due to the estate of Genesis Global Capital (Genesis) in May 2023. Additionally, last week, Gemini filed a scathing lawsuit against DCG and CEO Barry Silbert accusing them of fraud related to the $1.1 billion promissory note due to Genesis in June 2032.

As a result, Fir Tree believes the time is now for Grayscale and DCG to facilitate GBTC share redemptions and generate sufficient liquidity to repay Genesis’ creditors through a tender offer.”

Fir Tree’s Proposed Tender Can Help Solve Holdout Issues for Any Genesis Restructuring Deal

“We believe our proposed solution may also contribute to solving any holdout issue for any Genesis restructuring deal that is created by the reportedly large number of Genesis creditors who also own GBTC shares. These ‘crossover’ shareholders have a strong incentive to withhold their approval of any DCG settlement with Genesis’ estate that does not also benefit GBTC shareholders. We believe our solution provides the immediate resources that DCG needs to expedite the approval of a viable restructuring plan for Genesis. In the event ownership or management of DCG changes control in connection with any such restructuring plan, we would remain open to supporting the basic tender offer construct that we have proposed.”

A Tender Offer Can Unlock Value for GBTC Shareholders, DCG and Genesis Creditors

For illustrative purposes only, if Grayscale were to conduct a tender offer for 20% of shares outstanding—a figure that Michael Sonnenshein himself floated in his last end-of-year investor letter—at 94% of NAV, while reserving the right to conduct future quarterly tender offers, we believe Grayscale could potentially unlock:

• $3.6 billion in immediate value for GBTC shareholders who participate in the tender offer;
• $230 million in immediate value for DCG, which can use the funds to help repay its obligations to Genesis;¹ and
• $930 million in value through future quarterly tender offers,² which would solidify and pull forward Grayscale’s cash flow and further address DCG’s liquidity issues.

A Timeline For Executing a Tender Offer is Quick and Straightforward

Ultimately, executing a tender offer like the one Fir Tree has proposed above should be straightforward and can be initiated quickly without prior approval from the SEC. A potential timeline would include:

• Grayscale could likely obtain shareholder approval of any Trust Agreement amendments needed to complete the tender offer within approximately 60-90 days.
• Thereafter, Grayscale could conduct the tender offer within the statutory 20 business day tender period.
• Upon completing the tender offer, Grayscale could continue to pursue its efforts to convert GBTC into an ETF.

Fir Tree Urges Grayscale to Act in the Best Interests of All GBTC Shareholders

“The path forward is clear, and neither DCG nor Grayscale has contended that Fir Tree’s proposal is not viable. As Grayscale, DCG and their sophisticated legal advisors know, tender offers are ordinary course of business. While Grayscale’s management team has justified their refusal to conduct an immediate tender offer on regulatory complexities and the need to obtain prior regulatory approval, we believe that such statements are pretextual. Grayscale could even continue to pursue its efforts to convert GBTC into an ETF upon completing a tender offer. As such, there is no legitimate reason for DCG and Grayscale to resist a tender offer like the one described above, which is a simple solution that creates value for GBTC shareholders, Genesis creditors and DCG through a single transaction.

Fir Tree urges Grayscale to act in the best interests of all GBTC shareholders and finally commit to a long-overdue tender offer in order to unlock billions in immediate value for all shareholders who participate in a tender.”

About Fir Tree Partners

Fir Tree was founded in 1994 and is a New York based private investment firm that invests worldwide in public and private companies, real estate and sovereign debt. Fir Tree manages assets on behalf of leading endowments, foundations, pension funds and sovereign wealth funds. Where shareholder engagement could be value-accretive for its investors, Fir Tree follows a Positive Activism® approach in creating, not just identifying, value.

¹ These illustrative calculations assume that GBTC’s outstanding shares have approximately $19.3 billion of aggregate NAV as of the tender offer valuation date.

² This illustrative calculation assumes that the price of Bitcoin remains steady.

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Longacre Square Partners
Kate Sylvester
ksylvester@longacresquare.com