Alameda Research Drops Lawsuit Against Grayscale Amid GBTC Outflows

Hassan Shittu
Last updated: | 2 min read

Alameda Research Ltd., the hedge fund associated with the bankrupt cryptocurrency exchange FTX, has voluntarily dropped its lawsuit against Grayscale Investments amid GBTC outflows.

According to court filings from January 22, Alameda opted out of suing Grayscale, its CEO Michael Sonnenshein, its parent company Digital Currency Group’s (DCG), and founder Barry Silbert over a ban on Grayscale’s Bitcoin Trust (GBTC) redemptions.

The lawsuit, filed in March 2023, alleged that over $9 billion in investor funds were trapped in Grayscale’s Bitcoin Trust (GBTC) after the collapse of FTX. The lawsuit also claimed that Grayscale had excessively high fees.

In March, Alameda Research initiated a lawsuit seeking an injunction to release over $9 billion in value for Ethereum and Grayscale Bitcoin Trusts (the Trusts) shareholders and over $250 million in asset value for FTX creditors and debtors. Alameda holds shares in Grayscale’s Ethereum Trust and Bitcoin Trust as part of FTX’s bankrupt portfolio. The lawsuit alleges that Grayscale has drawn over $1.3 billion in extravagant management fees in the past two years, disregarding the Trusts’ agreements.

The lawsuit was part of broader efforts to recover and maximize funds for FTX customers affected by the collapse of the cryptocurrency exchange. FTX is facing 36,075 customer claims totaling $16 billion, with approximately $3.1 billion owed to its top 50 corporate creditors, according to a bankruptcy filing from 2022.

CEO John J. Ray III, FTX’s new boss following Sam Bankman-Fried’s resignation, said the suit sought injunctive relief at the time amid an amalgamation of assets earmarked for creditors and operational expenses.

A Grayscale representative who confirmed the news added that Alameda’s decision to withdraw upholds the asset manager’s view on the motion. Sonnenshein’s company had previously argued that the FTX-affiliated crypto trading firm had zero legal ground for a lawsuit.

Alameda Research Drops Lawsuit Against Grayscale Following GBTC Conversion to ETF

Grayscale converted GBTC into an ETF earlier this month after receiving approval from the Securities and Exchange Commission (SEC).With the approval and conversion of GBTC into a spot ETF, Grayscale investors have been able to redeem their shares. In its lawsuit, Alameda claimed that the digital asset manager, seeking to convert Ethereum Trust (ETHE) into a spot Ethereum ETF, charged high fees and didn’t allow redemptions.

The approval of GBTC as a spot Bitcoin ETF has addressed the issue of redemption, with Grayscale seeing a massive outflow since GBTC began trading on January 11, 2024. The conversion of GBTC into an ETF, the first to receive SEC approval, has allowed investors to exit positions more easily.

Approximately $2.8 billion reportedly flowed from GBTC after its conversion to an ETF. On Monday, the company reportedly sent 15,308 BTC worth over $623 million to Coinbase Prime.

The dropping of the lawsuit by Alameda Research coincided with reports that FTX had sold over $1 billion in shares of GBTC, as disclosed in the firm’s internal documents and sources familiar with the matter.

John J. Ray III, CEO of FTX, had previously stated that the lawsuit aimed to unlock value suppressed by what he alleged was Grayscale’s self-dealing and improper regulation ban. Grayscale responded to the dismissal, stating that Alameda’s move underscores Grayscale’s position that the legal action was entirely without merit.