Alameda Research Withdraws Grayscale Lawsuit Amid GBTC Shift

Alameda Research Ltd., associated with the now-bankrupt cryptocurrency exchange FTX, has voluntarily withdrawn its lawsuit against Grayscale Investments. This development comes amid significant outflows from Grayscale’s Bitcoin Trust (GBTC) following its conversion to an exchange-traded fund (ETF).

The lawsuit, initiated in March 2023, accused Grayscale of extracting over $1.3 billion in excessive management fees, violating trust agreements, and refusing investors’ redemption rights in its Bitcoin and Ethereum Trusts. Alameda Research aimed to unlock over $9 billion in shareholder value and recover significant assets for FTX’s debtors and creditors.

Grayscale, led by CEO Michael Sonnenshein and under the umbrella of Digital Currency Group (DCG) headed by Barry Silbert, faced allegations of suppressing share value through high fees and redemption bans. The charges were part of Alameda’s broader efforts to recover funds for FTX customers affected by the exchange’s collapse.

The recent decision to withdraw the lawsuit aligns with significant changes in GBTC’s operational structure. Earlier in January 2024, the U.S. Securities and Exchange Commission approved the conversion of Grayscale’s Bitcoin Trust into an ETF, allowing easier redemption of shares. This conversion resulted in a substantial outflow of approximately $2.8 billion from GBTC. On a related note, FTX had reportedly sold over $1 billion in GBTC shares.

A Grayscale spokesperson highlighted that Alameda’s voluntary dismissal underscored their position that the legal action lacked merit. The conversion of GBTC into an ETF and the lawsuit’s withdrawal mark a pivotal moment in the crypto industry, reshaping investor dynamics and legal precedents.

Alameda’s lawsuit withdrawal occurs in the backdrop of FTX’s ongoing bankruptcy proceedings, where it faces thousands of customer claims totaling $16 billion. The recent developments offer a glimpse into the complex interplay of legal, financial, and regulatory aspects in the evolving world of cryptocurrency investments.

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