2017 is in full swing at Grayscale where one bitcoin is just about over $9,000, a price level first reached to a wide applause of memes about five years ago.
Ethereum is not faring much better, with it going for $660 at Grayscale’s Ethereum Trust (ETHE), a price 45% below the global market rate of $1,200.
That makes this the worst year ever for the Grayscale trusts since they first launched in 2013, and sentiment has gotten worse still after Genesis paused withdrawals.
They’re a Digital Currency Group (DCG) subsidiary, as is Grayscale. Genesis had a $170 million exposure to FTX, but considering the vast holdings of DCG, you’d think they’re small potatoes.
Barry Silbert, its CEO, could himself perhaps cover that $170 million as he is worth $2 billion, but the fact they haven’t been able to do so far may well indicate DCG is running a tighter ship than it might appear.
Growth in their products has stalled and even contracted with the bear beginning to bite while sharks go hopping from project to project to see what might fall.
“Due to security concerns, we do not make such on-chain wallet information and confirmation information publicly available through a cryptographic Proof-of-Reserve, or other advanced cryptographic accounting procedure,” Grayscale said.
That courted some ridicule because public key cryptography means you can safely share your public key, except this isn’t Grayscale’s policy but Coinbase’s, their custodian.
Coinbase has always refused to publish their public addresses. Unlike many other exchanges that have one or a few big cold wallets, Coinbase chops up theirs in tons of addresses with balances of 5,000 to 10,000 BTC.
A few years ago it might have been difficult to find them, but nowadays we’d be surprised if some on-chain analysts did not have them neatly mapped out in all their fine glory.
If the public really wanted such Proof of Reserves, therefore, they can go draw nice charts of all addresses with balances of exactly 5,000 or 10,000 and label them as Coinbase.
There’s about at least 100 of them, certainly 50, with it unclear this ‘security concern’ really still holds, but this has always been Coinbase’s policy of security through obscurity.
No one is seriously speculating that GBTC does not have the 633,000 bitcoins however, although proof for such things is better than ‘trust us,’ with the speculation being more on whether they’ll have to dissolve the trust.
A trust as you might know is a vehicle from the Chancellery court where the owner in possession has obligations towards the legal owner. Grayscale in this case has obligations towards the GBTC shareholders who are the actual owners of the coins even though Grayscale possesses them.
Grayscale therefore has to act in their best interest, with the question being whether dissolving the trust would be in their best interest especially when there’s the alternative of suing SEC, as Grayscale has, to grant the ETF conversion for the trust.
Arguably that ETF conversion is better for these shareholders, and since Grayscale receives a 2% annual management fee, they probably won’t dissolve effectively their business unless they absolutely have to.
Compartmentalizing Genesis Capital however has turned out to be a lot more difficult than they might have initially thought.
DCG tried to paint Genesis Capital as a completely different, isolated thing out there which has nothing to do with these other things, yet in the market the pause of withdrawals at Genesis is reflecting on DCG, on Grayscale and on all their other products because they are the owners or share the same owners.
In addition it is quite unclear why they have allowed this discount to develop to such an extreme level.
It isn’t entirely new as the premium was extreme too and Grayscale tried to do something about it by buying some $750 million worth of GBTC last year, but the discount has only gotten worse since.
The company is therefore in some difficulties as its lending unit suspends normal operations, with it to be seen whether sharks will hop from here, or circle.