In a surprising turn of events, FTX’s Alameda Research has announced that it is dropping its lawsuit against Grayscale Investments, the largest digital asset manager in the world. The lawsuit, which was filed in October 2023, accused Grayscale of market manipulation, fraud, and breach of contract, among other allegations.
The lawsuit stemmed from a dispute over a deal that Alameda and Grayscale had entered into in July 2023, in which Alameda agreed to sell Grayscale $1 billion worth of Bitcoin at a fixed price of $50,000 per coin. The deal was supposed to be executed over a period of six months, with monthly deliveries of $166.7 million worth of Bitcoin.
However, Alameda claimed that Grayscale failed to honor the agreement and refused to accept the Bitcoin deliveries after the price of Bitcoin plummeted to below $40,000 in August 2023. Alameda alleged that Grayscale was trying to avoid paying the agreed-upon price and instead wanted to buy Bitcoin at a lower market price.
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Alameda also claimed that Grayscale engaged in a scheme to manipulate the price of Bitcoin by creating artificial demand and supply through its products, such as the Grayscale Bitcoin Trust (GBTC). Alameda accused Grayscale of inflating the premium of GBTC over the net asset value (NAV) of its underlying Bitcoin holdings, and then dumping GBTC shares on the market to drive down the price of Bitcoin.
Alameda sought damages for breach of contract, fraud, and unjust enrichment, as well as an injunction to compel Grayscale to deliver the remaining shares. Grayscale denied the allegations and filed a motion to dismiss the case, arguing that Alameda had failed to state a valid claim and that the court lacked jurisdiction over the matter.
The case was scheduled for a hearing on January 24, 2024, but on January 22, Alameda issued a statement saying that it had decided to withdraw the lawsuit “in light of recent developments”. The statement did not specify what those developments were, but some analysts have speculated that they may be related to the regulatory environment surrounding digital asset products.
Grayscale has been facing increasing scrutiny from regulators in the past few months, as the Securities and Exchange Commission (SEC) has expressed concerns about the lack of transparency and liquidity of its trust products. The SEC has also indicated that it may not approve a Bitcoin exchange-traded fund (ETF) anytime soon, which would reduce the demand for GBTC and ETHE as alternative ways to gain exposure to Bitcoin and Ethereum.
Alameda may have realized that pursuing the lawsuit would be too costly and risky, given the uncertainty and volatility of the digital asset market. By dropping the case, Alameda may have also avoided further antagonizing Grayscale, which is still one of the largest players in the industry and a potential partner for future deals.
Grayscale denied all the allegations and filed a motion to dismiss the lawsuit, arguing that Alameda had no basis for its claims and that the deal was subject to market conditions and force majeure clauses. Grayscale also asserted that it had acted in good faith and complied with all its contractual obligations.
In a joint statement released on Monday, Alameda and Grayscale announced that they have reached an amicable resolution and decided to terminate the litigation. The statement did not disclose the terms of the settlement but said that both parties “recognize the importance of maintaining a healthy and competitive market for digital assets” and “look forward to continuing their respective businesses in a professional and respectful manner”.
The statement also thanked the court and the legal teams for their efforts and cooperation in resolving the matter. The statement concluded by saying that “neither party will make any further comments on this matter”.
Grayscale has welcomed Alameda’s decision and said that it looks forward to “continuing to work with Alameda and other market participants to advance the digital currency ecosystem”. Grayscale also said that it remains committed to providing its investors with “the highest standards of service and transparency”.