By
Chimamanda U. Martha
April 19th, 2024
In the lawsuit, FTX said that Grayscale has been charging exorbitant management fees. They noted that “Grayscale’s actions have resulted in the Trusts’ shares trading at approximately a 50% discount to Net Asset Value”.
In the latest development bankrupt crypto exchange FTX is suing the world’s largest crypto asset manager Grayscale Investments. The lawsuit comes from FTX’s sister company Alameda Research to seek injunctive relief to FTX debtors to realize more than $250 million in asset value.
As per the press release, Alameda Research has filed the lawsuit in the Court of Chancery in Delaware. The FTX debtors have filed claims against Grayscale’s CEO, Michael Sonnenshein, along with its owners, Digital Currency Group and Barry Silbert.
In its lawsuit, Alameda claims that over the last two years, Grayscale extracted more than $1.3 billion n “exorbitant management fees” thereby violating the Trust agreements. Apart from the huge management costs of the Grayscale Bitcoin and Ethereum trusts, Grayscale allowed the trust shares to trade roughly at a 50% discount while preventing the shareholders from redeeming them. In its lawsuit, FTX argued:
“Grayscale has for years hidden behind contrived excuses to prevent shareholders from redeeming their shares. Grayscale’s actions have resulted in the Trusts’ shares trading at approximately a 50% discount to Net Asset Value. If Grayscale reduced its fees and stopped improperly preventing redemptions, the FTX Debtors’ shares would be worth at least $550 million, approximately 90% more than the current value of the FTX Debtors’ shares today”.
The Grayscale Bitcoin fund provides exposure to BTC to investors unable to hold units of the actual cryptocurrency. But since the shares of the fund cannot be redeemed for their underlying Bitcoin, they often trade above or below the value of the company’s BTC.
Grayscale is currently the world’s largest corporate Bitcoin holder with 629,900 BTC. As per the Grayscale website, the firm’s Bitcoin holdings per share are currently worth $20.29. However, the current market value of the Grayscale share is $11.72 which is a massive 45% discount.
Grayscale Calls the Lawsuit Misguided
In their response to all the allegations, Grayscale said that the “lawsuit filed by Sam Bankman-Fried’s hedge fund, Alameda Research, is misguided”. The crypto asset manager further added:
“Grayscale has been transparent in our efforts to obtain regulatory approval to convert GBTC into an ETF – an outcome that is undoubtedly the best long-term product structure.”
The newly appointed FTX CEO John Ray III stated: “Our goal is to unlock value that we believe is currently being suppressed by Grayscale’s self-dealing and improper redemption ban. FTX customers and creditors will benefit from additional recoveries, along with other Grayscale Trust investors that are being harmed by Grayscale’s actions.”