Renowned crypto firm Arcane Research has issued a warning to Bitcoin (BTC) and Ethereum (ETH) investors in light of the escalating events surrounding Digital Currency Group (DCG), Genesis and Grayscale. In a article by analyst Vetle Lunde the company warns:
Investors should pay attention to the ongoing financial problems related to Digital Currency Group (DCG) as the outcome could have serious consequences for the crypto markets.
In the reasoning behind the warning, Arcane Research states that if DCG goes bankrupt, it could be forced to liquidate its assets. “This could force DCG to sell its sizeable positions in GBTC and unknown positions in ETHE and other Grayscale trusts‘ said Lunde.
Further, the analyst argues that a “natural, less liquidity-constrained” solution could be a Reg M solution that would allow holders of Grayscale Bitcoin Trust (GBTC), Grayscale Ethereum Trust (ETH) and the other trusts to exchange shares against intrinsic value. where the.
This would resolve the near-record NAV – the value by which the fund trades below Bitcoin’s spot price. GBTC was trading at -45.35% yesterday, while ETH was trading at -55.83% NAV. Dissolution of the trust via Reg M would have a tangible impact on crypto markets as GBTC comprises approximately 3.3% of the circulating BTC supply and 2.5% of the ETH supply.
Arcane describes the threat to the market in the vast arbitrage opportunities:
A Reg M would trigger a massive arbitrage strategy of selling crypto spot versus buying Grayscale Trust stock. If this scenario plays out, crypto markets could go even further down.
In the long run, however, Arcane Research calls this scenario a positive event, as the crypto market is “finally relieved of the enormous burden” caused by the “greyscale widowers trade”. According to Lunde, this could even be the potential last market bottom event.
Bitcoin Facing Final Intrinsic Shock?
Like NewsBTC BTC reported, the pressure on DCG is increasing day by day. Earlier this week, Gemini founder Cameron Winklevoss published an open letter alleging that Barry Silbert’s DCG used blocking tactics in bad faith. Winklevoss gave Silbert a January 8 deadline to return the $900 million in Gemini Earn client funds.
Silbert’s failure to comply could lead to the coordination of a voluntary DCG Chapter 11 filing, according to Arcane Research. In addition, Valkyrie Investments and $3.5 billion asset manager Pine tree also came on stage.
Valkyrie made an offer to become GBTC’s new sponsor and manager while announcing the launch of an opportunistic fund to take advantage of GBTC rebates. Fir Tree has filed a lawsuit, allegedly in a tactical move to damage DCG’s valuation and reduce the likelihood of third-party investment.
At the time of writing, Bitcoin price stood at $16,817, still without volatility.
Featured image from iStock, chart from TradingView.com