Shareholder Campaign Fights To Reclaim Customer Bitcoin In Grayscale Lawsuit

A group of shareholders of the Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Trust (ETHE) have banded together to bring a lawsuit against Grayscale. Their goal: bringing legal action against Grayscale in an attempt to force them to allow redemptions for customer cryptocurrency held within the trusts it operates and to repay “exorbitant” management fees.

One of the largest GBTC and ETHE shareholders, Alameda Research, has filed a lawsuit against Grayscale with numerous funds joining as plaintiffs. The complaint was filed in Delaware’s Chancery Court, with the assertion that Grayscale has breached its “contractual and fiduciary duties to Alameda and other trust investors.” The specific complaint accuses Grayscale of charging excessive fees in addition to its refusal to allow for the redemption of bitcoin and ether. According to the court documents, Grayscale has charged over $1.3 billion in fees in the last two years alone. The plaintiffs are seeking to claw back those funds as well as renegotiate the fee structure of both GBTC and ETHE to “competitive rates.”

Source: Alameda Research verified complaint

Grayscale was originally able to charge a relatively high annual fee of 2% for GBTC because this trust was a unique investment vehicle at the time of its creation in 2013. Investors who were unable to gain bitcoin exposure in other ways were willing to pay this fee, but in recent years, these fees have become higher than competitive rates. Other firms have offered to take over operation of the trust at a lower management fee that is more in line with industry standards, including Valkyrie Investments who offered to manage the trust with an annual fee of 0.75%. 

In the past, the price of GBTC loosely followed the bitcoin price, but due to a six-month lockup period, the share price became uncorrelated to the underlying bitcoin sitting within the trust. There were times when the trust traded at a premium of nearly 50%, meaning that the value of a share was much higher than the equivalent bitcoin held in trust, however, in February 2021, shares started trading at a discount. At their lowest point, shares were trading at nearly a 50% discount and continue to trade at a discount to this day, costing shareholders billions of dollars in lost value. With shares trading at such a large discount and redemptions not allowed, shareholders are trapped unless they sell their shares at a considerable loss.

The plaintiffs are putting out a call to GBTC and ETHE shareholders who are interested in joining the lawsuit. The Grayscale Litigation website has additional details for those wishing to sign up to participate in the legal battle or for those wanting to find out more about the campaign. The initial deadline for joining the litigation is Sept. 1, with the last day by which Alameda is to respond to Grayscale’s motion to dismiss scheduled for Sept. 15.

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