Alameda Research Withdraws Grayscale Lawsuit Amid GBTC Shift

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Alameda Research Ltd., linked to the now-bankrupt cryptocurrency exchange FTX, has voluntarily withdrawn its lawsuit against Grayscale Investments.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, which began in March 2023, accused Grayscale of siphoning off more than $1.3 billion in excessive management fees, breaching trust agreements and denying investors redemption rights in its bitcoin and ethereum trusts. Alameda Research aimed to unlock more than $9 billion in shareholder value and recover significant assets for FTX’s debtors and creditors.

Grayscale, led by CEO Michael Sonnenschein and under the Digital Currency Group (DCG) umbrella led by Barry Silbert, has faced accusations of depressing share value through high fees and buyback bans. The charges were part of Alameda’s broader effort to recoup funds for FTX customers affected by the exchange crash.

The recent decision to withdraw the case is in line with significant changes to GBTC’s operational structure. Earlier in January 2024, the US Securities and Exchange Commission approved the conversion of Grayscale’s Bitcoin Trust into an ETF, allowing for easier share buybacks. This conversion resulted in a significant outflow of approximately $2.8 billion from GBTC. On a related note, FTX has reportedly sold over $1 billion in GBTC shares.

A Grayscale spokesperson emphasized that Alameda’s voluntary dismissal underscores their position that the lawsuit has no merit. The conversion of GBTC to an ETF and the withdrawal of the lawsuit marks a pivotal moment in the crypto industry, changing investor dynamics and legal precedents.

Alameda’s withdrawal of the lawsuit comes amid FTX’s ongoing bankruptcy proceedings, where it faces thousands of customer claims totaling $16 billion. Recent developments offer insight into the complex interplay of legal, financial and regulatory aspects in the evolving world of cryptocurrency investment.

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