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The FTX Contagion securities don’t even stop at the largest institutional Bitcoin product on the market, the Grayscale Bitcoin Trust (GBTC). Due to the bankruptcy of Sam Bankman-Fried’s crypto exchange, the NAV discount of Grayscale’s GBTC fund has dropped to about -40%.
At the end of 2020, GBTC was trading at a +40% premium. However, in January 2021, the trend reversal occurred when Grayscale’s Bitcoin fund traded at a discount for the first time. Since then, GBTC has entered a downward spiral.
The largest owners of GBTC include Cathie Wood’s ARK Invest (0.85%), Horizon Kinetics (0.34%), Simplify Asset Management (0.06%) Systelligence (0.04%), Parkwood (0.04%), Emerald Mutual Fund (0, 03%) and Rothschild Investment (0.01%), according to CNN Business.
Doomsday for Bitcoin
Recent events have led to Grayscale Bitcoin Trust possibly becoming the biggest risk to the Bitcoin market. Like NewsBTC reportedGenesis Global had to suspend all withdrawals for its lending business on Wednesday due to “unprecedented market turmoil”.
This is concerning for the Grayscale Bitcoin Trust because Genesis Global served as a liquidity provider for the trust. The parent company of Genesis Global is Digital Currency Group (DCG). This in turn is also the parent company of Grayscale.
Shortly after the Genesis announcement, Digital Currency Group clarified that the case would not affect its own business. DCG stated that Genesis is not a service provider “for any” grayscale product.
In addition, the company claimed that it does not lend, lend or pawn Bitcoin, and that its custodian – Coinbase – is prohibited from engaging in such activities. In addition, SEC and OTC market reports and audited financial statements are filed.
Grayscale products continue to operate normally and recent events have not affected the product’s operation.
The assets underlying $GBTC and all Grayscale products are safely held in segregated wallets in deep cold storage by our custodian Coinbase.
Still, the community complains. A dissolution of GBTC could spell Armageddon for Bitcoin. Terra Luna’s collapse, on the other hand, would have been nice.
The Grayscale Bitcoin Trust currently holds 634,000 BTC. The Terra Luna Foundation liquidated “only” 80,000 Bitcoins and still managed to crash the BTC price from $40,000 to $20,000.
As reported by Ryan Selkis, DCG is in liquidity straits. “It appears that the liquid assets of the holding company (DCG) are lower than the liabilities. As a result, it appears that DCG is looking for external funding.” However, this tweet is now deleted.
The Bitcoin community is now demanding proof that Grayscale actually holds about 634,000 BTC in reserve at Brian Armstrong’s Coinbase. However, neither Grayscale nor Coinbase have shown any response so far.
All that is currently available is a CSV file that is updated daily. As analyst Dylan LeClair explained, it should be relatively feasible to produce proof of reserves if all BTCs are held with Coinbase.
Does anyone know the addresses for the 630k BTC $GBTC? Is there some form of proof of reserves and if not, why?
We have a fully transparent ledger so we can monitor this.
I can only find a CSV file that is updated daily. Why don’t you publish the addresses?
— Dylan LeClair 🟠 (@DylanLeClair_) November 17, 2022
But criticism also focuses on the US Securities and Exchange Commission. If Chairman Gary Gensler had approved the conversion of GBTC into an ETF, the Armageddon scenario would not even exist.
Instead, Gensler preferred to reject mock Bitcoin ETFs and flood the market with paper BTC. The FTX fiasco may also contribute to the lack of approval for a spot ETF in the near future.
Meanwhile, Chris Burniske, partner at Placeholder and former crypto chief at ARKinvest, tweeted that fears of GBTC and ETHE unwinding are unfounded, an example of hysteria.
He retweeted Bob Loukas that one wrote that trust will not disappear because it is a money printing machine.
They’re generating $700 million in fees and investors can’t stop it. […] They could borrow billions against that cash flow.
You don’t kill a goose to save Genesis either. They have a firewall.
At the time of writing, Bitcoin investors seemed to agree with Chris Burniske. BTC remains in a wait and see mode.