Bitcoin Investors Are Plotting a Major Coup

Like Valkyrie, Osprey has called on Grayscale to step down as sponsor and put itself forward as a replacement. In an open letter, Osprey CEO Greg King promised to cut the management fee by 75 percent, seek immediately to implement a redemption program, and collaborate with regulators instead of pursuing litigation.

The Fir Tree and Osprey lawsuits were described by Jennifer Rosenthal, vice president of communications at Grayscale, as “baseless” and “frivolous,” respectively. “We remain steadfast in our belief that the conversion of GBTC to an ETF is the best long-term product structure for investors, and are 100 percent committed to that endeavor,” she says.

As it stands, the various parties are locked in a stalemate; Grayscale says it’s not going anywhere and remains confident in the strength of its case against the SEC, while the activists are scratching their heads over how to remove the firm.

In the meantime, the situation threatens to devolve into a mud-slinging contest, says Parish, as Grayscale tries to ride out this difficult period.

It is not necessarily in Grayscale’s interest for the conversion to an ETF to take place too quickly, he says, because the recent negative press around DCG and its subsidiaries (the lending unit of one subsidiary, Genesis, filed for bankruptcy in January) would likely cause investors to run for the exit at the earliest opportunity, taking millions of dollars in management fees with them.

“The entirety of Grayscale’s strategy here is to limit redemptions and then PR, PR, PR. And to fight legal battles on whatever field they have to fight,” claims Parish.

Sonnenshein contests the idea that activating redemptions would trigger a customer exodus, arguing that the “regulated, battle-tested” ETF structure will attract an even larger audience and an even greater amount of capital into bitcoin. He also says that converting the trust into an ETF has been the plan from the outset. “This is something that investors want and deserve,” he says.

If the courts were to rule against Grayscale and the company exhausts all remaining legal avenues of appeal, Sonnenshein says it would pursue a tender offer whereby a portion of shareholders are bought out of their shares at a price established with “investor fairness” in mind.

But RedeemGBTC and Fir Tree do not share Grayscale’s conviction in the strength of its case against the SEC, which is described by the pair as “doomed” and “wasteful,” respectively, and point to the need for an urgent resolution to the situation.

“If we thought Grayscale was going to be successful [in converting GBTC to an ETF], we wouldn’t try to stop it. We just don’t think it’s going to happen—so something has to be done,” says Bailey. 

Three other shareholders say they believe it is unlikely for an ETF to be approved while Gary Gensler, sitting chairperson of the SEC, remains in charge. (Gensler’s term is due to end in 2026.) The SEC declined to comment.

“They [Grayscale] are going to dig their heels in and fight to the very end, but it’s not going to bode well for them,” says McClurg. “Financial services is a confidence game; when your clients lose faith, you’ll never get them back. In the long run, I think they’re done.”