Alameda Research – sister trading firm to the now bankrupt FTX exchange – is suing the world’s largest Bitcoin fund on behalf of FTX’s debtors and affiliates.
The company demands that Grayscale permit redemptions on its Bitcoin and Ethereum Trusts, which could cumulatively unlock over $9 billion for the trust’s shareholders.
Grayscale’s Bitcoin Stash
Per a press release from the FTX Debtors on Monday, claims have also been filed directly against Grayscale CEO Michael Sonnenshein, and Digital Currency Group (DCG) CEO Barry Silbert. DCG is the parent company of Grayscale.
According to FTX, allowing shareholders to redeem their shares would recover over $250 million in value for FTX’s customers, who have been left to dry after the exchange froze withdrawals in November.
“Grayscale has for years hidden behind contrived excuses to prevent shareholders from redeeming their shares,” argued FTX. “Grayscale’s actions have resulted in the Trusts’ shares trading at approximately a 50% discount to Net Asset Value.”
Grayscale’s Bitcoin fund is intended to provide Bitcoin exposure to those who otherwise cannot hold units of the actual cryptocurrency. However, since shares of the fund are not easily redeemable for their underlying Bitcoin, the shares often trade well above or below the value of the company’s BTC.
According to Grayscale’s website, the firm’s Bitcoin holdings per share are worth $20.29, while the current market value per share is $11.72 – a whopping 44.55% discount. In total, the company holds 629,900 BTC, making it the largest corporate Bitcoin holder on Earth.
Unlocking Grayscale’s Bitcoin
Grayscale profits by charging its investors a 2% yearly management fee. FTX claims that such “exorbitant fees” have extracted $1.3 billion from customers “in violation of the Trust agreements.”
“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,” continued FTX.
Grayscale is currently embroiled in a legal battle with the Securities and Exchange Commission over the regulator’s refusal to let Grayscale transform its fund into a Bitcoin Spot ETF. Such a product would make shares easily redeemable, and eliminate the GBTC share discount overnight.
FTX’s Chief Restructuring Officer, John Ray III, said in a statement that Grayscale’s redemption ban is “improper,” and hurting both FTX creditors and Grayscale investors.
