FTX-Affiliated Alameda Research Sues Grayscale Over Crypto Investments, Adding to Woes for Digital Currency Group – What’s Going On?

In a last ditch move to ‘maximise recoveries’ Alameda Research has filed a lawsuit against Grayscale Investments.

The lawsuit alleges that Grayscale charge ‘exorbitant management fees’. And named Grayscale CEO Michael Sonnenshein as it went on to accuse Grayscale of ‘improperly preventing redemptions’.

Grayscale operates over-the-counter traded funds – a Bitcoin Trust (GBTC) and an Ether Trust (ETHE).

Both are subject to a 2% annual management fee (US ETF industry standard is 0.54% according to Bloomberg data).

Accredited investors are able to deposit Bitcoin or Ethereum to receive shares of the trust (Grayscale also facilitate fiat onboarding).

Alameda said it owned $290m worth of shares in GBTC and ETHE – amounting to 3% and 2% of the respective trusts at the end of 2022.

The disgraced firm alleges the stake would rise to a $540m valuation if Grayscale greenlight redemptions.

GBTC Redemptions Continue To Cause Gridlock

But a governing regulation at GBTC prevents investors from selling their shares for a period of six-months after investing.

For a long time, Grayscale trusts have traded at a significant discount to BTC and ETH – which has seen institutional investors lock up large amounts of capital.

GBTC is currently trading at a -42.11% discount to net asset value. 

The firm have so far held off on redemptions during the discounted period, as it continues to seek conversion of GBTC and ETHE to ETF spot funds.

This is because of fears that redemptions could have a huge impact on Bitcoin price development and Grayscale’s operational future.

However, with an attempted ETF conversion last year rejected – Grayscale itself is now pursuing a lawsuit against the SEC.

Grayscale Turn To Court In ETF Pursuit

Grayscale hit back at the Alameda lawsuit, labelling it as ‘misguided’. The statement comes ahead of oral arguments (today – March 7) in Grayscale’s case against the SEC.

CEO Michael Sonnenshein released a statement defending Grayscale’s decisions and charges.

“Grayscale has been transparent in our efforts to obtain regulator approval to convert GBTC into an ETF,” it read.

“[An ETF is] an outcome that is undoubtedly the best long-term product structure for Grayscale’s investors.

“We remain confident in common sense, compelling legal arguments that will be argued tomorrow before the D.C. Court of Appeals.

Alameda Research Join Ranks Of GBTC Lawsuits

This is far from the first time Grayscale have been subject to lawsuit – perhaps reflective of their litigious ‘accredited’ customers.

In January, Osprey Funds announced a lawsuit against Grayscale. The case alleged that Grayscale conducted ‘false and misleading advertising’ for GBTC.

And this followed an earlier case at the end of last year.

Which saw Osprey rival firm – Fir Tree Capital Management – allege that GBTC’s retail investors were being harmed by Grayscale’s ‘shareholder unfriendly actions’ in pursuing the ETF.