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A billion-dollar hedge fund bets on Bitcoin and Grayscale, not just USDT

The pressure on Grayscale with his Bitcoin Trust (GBTC) and parent company Digital Currency Group continues to grow. And as Ram Ahluwalia, CEO and co-founder of crypto-native investment advisor Lumida pointed out in a recent thread, two new characters, Valkyrie Investments and Fir Tree, have joined the “Shakespearean drama.”

Especially the motivation of the second is very doubtful. Fir Tree is a hedge fund with approximately $3 billion in assets under management (AUM) and hundreds of holdings. SEC 13F filings show Fir Tree holds First Citizen’s Bank, KKR, Comcast, and hundreds of other securities. They are also big investors in oil and tobacco.

Ahluwalia therefore questions why Fir Tree is interested in GBTC as a value investor and filed a lawsuit against Grayscale in early December, given that the hedge fund doesn’t own much GBTC.

Fir Tree Capital Management filed the lawsuit to obtain information that could be used to force changes to the way the company operates its flagship Bitcoin Trust.

The lawsuit seeks to have Grayscale reduce its fees, initiate redemptions and release documents related to its relationship with the Digital Currency Group. Additionally, Fir Tree is also attempting to halt Grayscale’s efforts to convert its Grayscale Bitcoin Trust (GBTC) into a Spot Exchange Traded Fund (ETF).

A major short in bitcoin, crypto and tether?

Ahluwalia hypothesizes that the arguments presented in the lawsuit do not reflect her true motivation. Fir Tree claims the motivation lies with the “end investors” such as “teachers, firefighters, police officers and other officials” who own GBTC.

“There’s a bigger story here… Be skeptical,” Ahluwalia says, explaining, “Fir Tree is taking a bigger bet against the crypto ecosystem (USDT, Bitcoin, etc.) and pushing for any softpoints it can find.”

In this regard, the Chartered Financial Analyst (CFA) points to Bloomberg’s revelation that Fir Tree took a large short position on Tether (USDT) in March 2022. Fir Tree is partially betting on a break of the USD/USDT peg a “bank run” by March 2023.

The position has been structured as an “asymmetric trade”, meaning downside risk is low and potential upside high, with the official rationale for the trade being that “a bulk” of the trading paper backing the token goes to Chinese real estate developers is bound, some of whom are in trouble.

In addition, the analyst claims that Fir Tree has three “soft points” of the bitcoin and crypto market that the hedge fund can shake: Grayscale, the USDT bond and Binance, while according to Ahluwalia, Fir Tree cannot take any action regarding the exchange. Regarding GBTC, the analyst notes:

Fortunately, I don’t see a credible way of dissolving Grayscale Trust. The Trust is a cash cow and may receive a private valuation from a third party based solely on cash flows. What Fir Tree does is push on the stool’s loose legs.

With the lawsuit, Fir Tree could be trying to reduce the chances of DCG raising outside capital while its own bet has about 3 months left. The 13F filings also do not indicate whether the hedge fund is also short Bitcoin or has OTM puts on BTC.

The enemy of my enemy is my dynamic friend

Valkyrie, albeit with “heroic” intentions, doesn’t make things easier as they propose to take on the role of managing GBTC and cut fees from 2% to 75 basis points. Also, Valkyrie would use Reg M. Both would hurt Grayscale’s valuation.

“In my opinion, Fir Tree is trying to spoil the probability of a VC increase and push DCG over the edge. […] Fir Tree and Valkyrie are strange bedfellows. Fir Tree bets against Tether. Valkyrie is positioned as a hero for Bitcoin/GBTC holders. It’s an “enemy of my enemy is my friend” dynamic,” says Ahluwalia.

For Bitcoin investors, the unresolved situation around DCG and Grayscale remains one of the biggest potential risks for further crypto-intrinsic market turbulence. At press time, BTC price is $16,624.

A billion-dollar hedge fund bets on Bitcoin and Grayscale, not just USDT, Crypto Trading NewsBitcoin price, 1 day chart

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Source: Crypto News Deutsch

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