SBF's Alameda Rese Yuarch Wants $9 Billion From Grayscale

SBF’s Alameda Rese Yuarch Wants $9 Billion From Grayscale

Updated: 07 March 2023

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Alameda Research, a trading firm affiliated with the FTX exchange, has sued the world’s biggest Bitcoin fund on behalf of FTX’s debtors and affiliates.

The lawsuit seeks permission from Grayscale, a cryptocurrency investment firm, to allow shareholders to redeem their investments in Bitcoin and Ethereum Trusts. This move could unlock over $9 billion for the trust’s shareholders.

According to an FTX press release, the Debtors on Monday, claims have been lodged against Michael Sonnenshein, the CEO of Grayscale, and Barry Silbert, the CEO of Digital Currency Group (DCG), which is Grayscale’s parent company.

FTX claims that enabling shareholders to redeem their shares would recover over $250 million in value for FTX’s clients, who were left stranded when the exchange halted withdrawals in November.

FTX further argued that Grayscale has used flimsy justifications for years to prevent shareholders from redeeming their shares. This has led to the Trusts’ shares trading at a discount of around 50% to their Net Asset Value

Grayscale’s Bitcoin fund aims to offer a means for individuals who cannot own actual Bitcoin to gain exposure to it. Nevertheless, the fund’s shares are not easily convertible into the underlying Bitcoin, causing them to trade at a significant premium or discount to the value of the company’s Bitcoin holdings.

FTX Alleges Grayscale’s Excessive Fees Result in $1.3 Billion Extraction

As stated on Grayscale’s website, the company’s Bitcoin holdings per share are $20.29, whereas the present market value per share is $11.72, showing a significant discount of 44.55%. Grayscale holds a huge amount of Bitcoin (629,900 BTC), making it the largest company in the world to hold Bitcoin.

Grayscale generates profits by imposing a 2% annual management fee on its investors. FTX alleges these fees are excessively high and have resulted in the extraction of $1.3 billion from customers, violating the Trust agreements.

FTX further claims that if Grayscale were to reduce its fees and stop hindering redemptions, the shares of the FTX Debtors would be worth a minimum of $550 million, approximately 90% more than their current market value.

Grayscale is also in a legal battle with the Securities and Exchange Commission (SEC) over plans to turn its fund into a Bitcoin Spot ETF. The ETF would make it easier to sell shares and eliminate the discount Grayscale investors have to deal with right now.

FTX, a cryptocurrency exchange, has criticized Grayscale’s ban on redemptions, calling it “improper.” Ray III said that the ban hurts both FTX creditors and Grayscale investors.

Grayscale Legal Battle with SEC

The legal battle between Grayscale and the SEC revolves around the regulator’s refusal to allow Grayscale to convert its fund into an ETF. This move would significantly affect the cryptocurrency market, making Bitcoin more accessible to mainstream investors.

The ban on redemptions is a contentious issue for Grayscale investors, who have been facing a discount on their shares. The ban prevents investors from redeeming their shares, which has caused the share price to fall below the value of the underlying assets.

FTX’s criticism of the redemption ban highlights the broader impact of the legal battle between Grayscale and the SEC. As the cryptocurrency market evolves, the outcome of this dispute could have significant implications for the industry.