FTX Affiliate Alameda Research Sues Grayscale Over Crypto Investments, Adding To Digital Currency Group’s Woes – What’s Going On?

In a final move to “maximize recoveries,” Alameda Research filed a lawsuit against Grayscale Investments.

The lawsuit alleges that Grayscale charges “exorbitant management fees.” And named Grayscale CEO Michael Sonnenshein as he accused Grayscale of “unduly preventing takeovers”.

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

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

Accredited investors can deposit Bitcoin or Ethereum to receive units in the trust (Grayscale also facilitates fiat integration).

Alameda said it held $290 million worth of shares in GBTC and ETHE, or 3% and 2% of the respective trusts at the end of 2022.

The disgraced company alleges the stake would reach a valuation of $540 million if buyouts go-ahead in Grayscale.

GBTC takeovers continue to cause stalemate

But a regulation in force at GBTC prevents investors from selling their shares for a period of six months after the investment.

For a long time, grayscale trusts traded at a significant discount to BTC and ETH – which saw institutional investors lock in large amounts of capital.

GBTC is currently trading at a -42.11% discount to NAV.

So far, the company has delayed redemptions during the refresh period as it continues to seek the conversion of GBTC and ETHE into ETF spot funds.

This is due to fears that redemptions could have a huge impact on the price performance of Bitcoin and the operational future of Grayscale.

However, with an ETF conversion attempt last year rejected – Grayscale itself is now pursuing legal action against the SEC.

Grayscale to go to court in ETF lawsuit

Grayscale hit back at Alameda’s lawsuit, calling it “misguided.” The statement comes ahead of the closing arguments (today – March 7) in the Grayscale v. SEC case.

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

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

“[An ETF is] a result that is arguably the best long-term product structure for Grayscale investors.

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

Alameda Research joins ranks of GBTC lawsuits

This is far from the first time that Grayscale has been sued – possibly over its 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 late last year.

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