A lawsuit has been filed by the investment arm of the ill-fated FTX exchange, Alameda Research, against Grayscale Investments and its parent company, Digital Currency Group (DCG).
Grayscale is the company behind the Grayscale Bitcoin Trust (GBTC). The oldest and largest Bitcoin fund traded on Wall Street.
Alameda, which is in the process of liquidation and is now run by restructuring expert John Ray, has accused Grayscale and DCG management of being “self-interested” and enriching themselves at the expense of shareholder interests by refusing to allow share redemptions and charging excessive fees.
Indeed, the management fees charged by Grayscale are higher than any other Bitcoin ETF.
Why?
Because until October 2021 there was no other fund, Bitcoin ETF-type fund, trading on a US exchange.
The ProShares Bitcoin Strategy (BITO), which in fact is not based on the spot market but on futures, was the start.
Any institutional or individual who wanted to gain exposure to Bitcoin or other cryptocurrencies through a traditional exchange, without messing with personal e-wallets, had a one-way street.
Among Grayscale’s shareholders is Alameda, which claims to own over 22 million shares of GBTC (which owns Bitcoin) and an additional 6 million shares in the company’s Ethereum Trust.
Its holdings account for more than 3% and 2% of total shares. The total is worth nearly $300 million.
The problem here is twofold. On the one hand, that amount could be twice as much. Why? Because the funds are trading at a deep discount, about 45%. At almost half of their intrinsic value.
Their market capitalization is currently at 55% relative to the value of the cryptocurrencies they claim to hold.
We use the word ‘claim’ because, despite repeated pressure, they refuse to make public the addresses where they keep their coins, so that interested parties can see that they are telling the truth.
What do they claim?
Security reasons.
That is why investors are skeptical. But there’s another reason, too, for negotiating such a large discount.
There is no easy redemption mechanism for the bitcoin they hold, by statute.
If Alameda and any other shareholder had the ability to exchange their shares for cryptocurrencies, they would be worth twice as much.
The only way to liquidate their position is to sell their shares, losing almost half the money they are actually worth. That was Alameda’s argument in her testimony in a Delaware court.
Grayscale, for its part, claims that they are not responsible. The solution to the problem lies with the US Securities and Exchange Commission (SEC), against which it has filed a lawsuit.
It considers that without good cause it is preventing the conversion of its entities into ETFs. Since similar ETFs based on the derivatives market have been given permission, why are they not allowed to exist in the spot market?
If their application is approved and they are converted to ETFs, they would immediately increase in value because they would be able to freely buy and sell cryptocurrencies.
We eagerly await what is going to happen, as the point is indeed pivotal. Grayscale owns almost 3% of the total amount of Bitcoin and 2.5% of Ethereum.
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