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US lawmaker questions SEC about GBTC redemptions
Congressman Brad Sherman Sherman asked the SEC if Regulation M was a barrier to GBTC shareholder redemptions.
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Updated: Jul. 12, 2023 at 3:07 pm UTC
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U.S. Congressman Brad Sherman questioned the Securities and Exchange Commission (SEC) about whether Grayscale Bitcoin Trust investors (GBTC) can redeem their assets from the investment company.
In a May 11 letter directed to the SEC Chair Gary Gensler, the Congressman claimed that Grayscale prioritized profits regardless of how it affected over 850,000 retail investors whose assets are currently trapped in GBTC.
“Grayscale marketed itself as a way for retail investors to invest in bitcoin and share in its financial growth without worrying about the safety and storage difficulties that come with owning cryptocurrencies directly.”
According to the Congressman, Grayscale’s decision to issue more GBTC shares played a significant role in the shares trading at over 40% discount to its net asset value. The discount has narrowed to 39.76% as of press time, according to ycharts data.
Sherman noted that these actions created concerns for thousands of GBTC investors, adding that an SEC intervention was necessary for investor protection.
Meanwhile, Grayscale had denied investors’ request for it to allow redemptions, citing Regulation M. The rule prohibits companies from simultaneous sales and redemption of the same security.
Sherman posed several questions to the SEC about Regulation M and whether it was still a barrier to shareholder redemptions. His other questions bordered on Grayscale’s lack of an independent director on its board and whether its 2% Bitcoin-based fee was high.
The lawmaker requested that the financial regulator answer these questions before May 15.
Community welcomes intervention
The letter generated mixed opinions from the crypto community, with some describing it as a welcome development. However, several others criticized Sherman and considered the letter another sign of FUD โ citing his previous anti-crypto posture.
The lawmaker had previously described Bitcoin holders as tax evaders and has maintained a strong anti-crypto rhetoric in his interventions about the space.
Meanwhile, the letter presents another headache for Grayscale. The firm is battling the SEC over its refusal to approve the conversion of its BTC trust into a spot ETF.
Besides that, its parent company Digital Currency Group is in a financial mess due to one of its subsidiaries โ Genesis โ whichย filedย for bankruptcy on Jan. 19.
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Bitcoin, a decentralized currency that defies the sway of central banks or administrators, transacts electronically, circumventing intermediaries via a peer-to-peer network.
Grayscale Investments
Established in 2013 by Digital Currency Group, Grayscale Investments is a trusted authority on digital currency investing and cryptocurrency asset management.
Gary Gensler is an American government official and former investment banker who President Joseph Biden nominated to chair the U.S.
Congressman Brad Sherman, born and raised in Southern California represents much of Californiaโs San Fernando Valley, and is serving his thirteenth term in the U.S.