Alameda Sued Grayscale Over Discounts at Bitcoin and Ether Trusts

Alameda Research Ltd., an FTX debtor in possession, filed a verified complaint in Delaware’s Court of Chancery on March 6, 2023 against Grayscale Investments, its parent Digital Currency Group, Grayscale chief executive Michael Sonnenshein and DCG chief executive Barry Silbert. Alameda sought damages and court orders aimed at reducing the fees and opening redemptions at the Grayscale Bitcoin Trust and Grayscale Ethereum Trust.

The filing put two of crypto’s largest investment vehicles inside FTX’s bankruptcy-recovery campaign. It also focused attention on a structural gap between the market price of trust shares and the value of the bitcoin or ether represented by those shares. The case began with allegations, not findings: none of Alameda’s claims had been adjudicated on March 6.

Alameda targeted the trust structure

Grayscale’s trusts gave investors securities-market exposure to bitcoin and ether without requiring them to hold the tokens directly. But they did not operate an ongoing redemption program. Grayscale Bitcoin Trust’s annual report, filed with the Securities and Exchange Commission before the lawsuit, said regulatory approval and the sponsor’s approval would be required for a future redemption program. It also warned that the absence of redemptions removed an arbitrage mechanism that might otherwise help align the share price with the value of the underlying assets.

Alameda alleged that this structure, combined with Grayscale’s fees, harmed shareholders. The complaint said the Bitcoin Trust charged an annual sponsor’s fee of 2% of its asset-value basis and the Ethereum Trust charged 2.5%. It alleged that Grayscale had collected more than $1.3 billion in management fees over the preceding two years and breached contractual and fiduciary obligations. Those were the plaintiff’s characterizations; the filing itself did not establish liability.

The complaint asked the court to find breaches of contract and fiduciary duty, award damages and order relief intended to permit redemptions and lower fees. The FTX debtors said the requested changes could unlock at least $9 billion for shareholders across both trusts and add more than $250 million to the value available to FTX customers and creditors. They also said their trust shares could be worth at least $550 million under the proposed relief, roughly 90% above the value they assigned to the position on March 6. These were litigation estimates, not cash recoveries, appraisals accepted by the court or guarantees to creditors.

The discount was measurable, but the cause was contested

Alameda’s complaint measured the Grayscale Bitcoin Trust discount to net asset value at 45% and the Grayscale Ethereum Trust discount at 54%, using the March 3, 2023 market close. The instruments were the OTC-traded GBTC and ETHE shares; net asset value referred to the proportional value of each trust’s underlying token holdings, after the trust’s methodology and expenses.

That snapshot was not a cryptocurrency-market closing price and did not show that redemptions alone caused the discounts. Trust-share trading hours differed from the continuously operating bitcoin and ether markets, while fees, liquidity, investor demand, regulatory uncertainty and the inability to arbitrage shares against assets could all matter. The complaint’s approximately $9 billion estimate depended on its requested remedies and event-day asset prices.

Grayscale disputed the case. A spokesperson told Reuters on March 6 that Alameda’s lawsuit was misguided and said converting GBTC into an exchange-traded fund was the best long-term product structure for investors. At that point, Grayscale was separately challenging the SEC’s rejection of the proposed conversion; no court victory or conversion approval had yet occurred.

Why the filing mattered

FTX’s new management was searching for assets and claims that could increase recoveries after the exchange group entered Chapter 11 in November 2022. The Grayscale suit showed that recovery efforts would extend beyond locating coins and cash to challenging the terms and governance of major crypto investment products.

For the wider market, the dispute exposed how a security backed by digital assets could trade far below its stated holdings when shareholders lacked a direct redemption route. That was an institutional design issue, not proof that the bitcoin or ether in the trusts was missing.

Later context

Alameda voluntarily dismissed the case without prejudice in January 2024 after GBTC had converted into a spot bitcoin exchange-traded product. That later outcome was not knowable on March 6, 2023 and does not turn the original allegations into judicial findings.