In a surprising turn of events, Alameda Research Ltd., the hedge fund associated with the now-bankrupt FTX cryptocurrency exchange, has chosen to drop its legal battle against Grayscale Investments. This decision comes against the backdrop of Grayscale's recent transformation of its Bitcoin Trust (GBTC) into an exchange-traded fund (ETF), following approval from the Securities and Exchange Commission (SEC). The move marks a significant development in the ongoing saga surrounding over $9 billion in investor funds, initially trapped in the wake of FTX's collapse.
Originally filed in March 2023, Alameda's lawsuit had accused Grayscale, its CEO Michael Sonnenshein, parent company Digital Currency Group (DCG), and founder Barry Silbert of obstructing redemptions for Grayscale’s Bitcoin Trust (GBTC). The suit also alleged exorbitant fees, claiming that Grayscale drew over $1.3 billion in management fees over two years, disregarding trust agreements.
Alameda Research sought an injunction to release value for Ethereum and Grayscale Bitcoin Trusts shareholders, as well as assets for FTX creditors. The lawsuit was part of broader efforts to recover funds for the 36,075 FTX customers affected by the exchange's collapse.
As the legal drama unfolded, FTX's new CEO, John J. Ray III, explained that the suit aimed to secure relief amid the amalgamation of assets for creditors and operational expenses. However, Grayscale contended that FTX had no legal grounds for the lawsuit.
The withdrawal of Alameda's lawsuit coincided with reports of FTX selling over $1 billion in GBTC shares. Simultaneously, Grayscale's successful conversion of GBTC into an ETF, the first to receive SEC approval, addressed the redemption issue, triggering a massive outflow of approximately $2.8 billion from GBTC.
Alameda Research's decision to drop the lawsuit against Grayscale comes at a pivotal moment, aligning with the transformation of GBTC into an ETF. Grayscale's successful maneuver not only resolved the redemption concerns but also facilitated a substantial outflow of funds. As FTX navigates through its challenges, the intricate dynamics between cryptocurrency exchanges and asset managers continue to shape the landscape, with each move significantly impacting investor sentiments and financial outcomes.
