Grayscale Faces Criticism as Crypto Market Continues to Bleed

Grayscale Investments is currently facing criticism for its alleged role in the recent crypto market meltdown. The spotlight is on Grayscale’s Bitcoin Exchange-Traded Fund (ETF) product, GBTC.
Quick Take:

• Grayscale Investments and its Bitcoin ETF product, GBTC, face allegations of their role in the recent crypto market downturn.
• FTX liquidates over two-thirds of GBTC shares, raking in at least $600 million.
• Grayscale has posted total outflows of nearly $2.2 billion since ETF approval.
• Alameda Research’s lawsuit against Grayscale concludes as GBTC converts to an ETF.

The backlash comes in the wake of Grayscale underperforming in trading volume and net inflows compared to other major players like BlackRock and Fidelity Investments, following the SEC’s approval of 11 spot Bitcoin ETFs.

#FTX Shocks Market with $1B #Grayscale ETF Sell-Off & Alameda Drops Bombshell Lawsuit Against Grayscale! 🚨💥💰📉 $GBT

• 🚨 FTX's bankruptcy estate offloaded approximately $1 billion of Grayscale's Bitcoin ETF, shedding light on recent GBTC outflows.
• 📊 Since the conversion… pic.twitter.com/iipXsgXnef
— RichQuack (@RichQuack) January 22, 2024

Reports suggest that the FTX estate has liquidated more than two-thirds of its GBTC shares, making at least $600 million. The sale was executed in the early days of GBTC’s conversion into a spot exchange-traded fund (ETF), which points to a calculated move from the firm.
The FTX estate initially held 22.28 million GBTC shares, valued at $902 million before the spot ETF approval on January 11. Over the next three days of trading, FTX sold over two-thirds of its shares. The current holding is now less than 8 million shares, worth approximately $280 million.
On the fifth trading day following the SEC’s approval of spot Bitcoin ETFs, Grayscale recorded a staggering outflow of $579.6 million. It brings the total outflows to nearly $2.2 billion. 
Moreover, Grayscale has made transfers of Bitcoin to various crypto exchanges, including Coinbase. Data shows that Grayscale has deposited 63,991 Bitcoin, valued at over $2.68 billion, into these exchanges. These movements have triggered a sell-off across the crypto sector.

Alameda Research Pulls Back on the Grayscale Lawsuit

Back in March, Alameda Research sued Grayscale for an allegedly improper fund freeze leading to a loss of customer cash. The firm accused Grayscale of enforcing a “self-imposed redemption ban,” obstructing shareholders from accessing the Bitcoin held by the trust.
However, the dynamics changed on January 11, when the SEC approved the Grayscale Trust to convert into an ETF. As a result, GBTC shares’ discount versus net asset value decreased to 1.55%, more closely aligning with Bitcoin’s value. Currently, GBTC is only 0.27% below its net asset value per share.
Following this, Alameda Research dropped its lawsuit against Grayscale on January 22. Grayscale responded by stating that Alameda’s voluntary dismissal reaffirms its position that the legal action was without merit.

Market Experts Weigh In on Recent Developments

As the market grapples with the aftermath of the recent selloffs, criticisms against Grayscale have gone high. Bitcoin advocate Nic Carter has called GBTC the “most cursed financial instrument of all time.”
Several others in the crypto space agree with Carter’s assessment that Grayscale’s actions contributed significantly to Bitcoin’s downward price trend. The industry giants once lauded the firm’s efforts for the spot Bitcoin ETFs. 
However, recent events have led to a belief that the downturn in Bitcoin’s price to Grayscale’s actions. Anthony Scaramucci, founder of SkyBridge Capital, points to substantial sales of GBTC shares contributing to the recent dip in Bitcoin price. 
Following its peak earlier this month at $46,000, Bitcoin is currently trading at $40,012. A few hours ago, the leading crypto token fell below the $40K mark as well.
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Afroz Ahmad