20% of the Grayscale Bitcoin Trust (GBTC) shareholders have signed up to vote for redeeming the trust.
That’s according to David Bailey, the owner of the Bitcoin Magazine and the Founding Partner of UTXO Management. The latter has about $2 million in GBTC.
“DCG sold a fiction to Wall Street. They thought they could never lose control because the shares are distributed so widely across 850k shareholders. They laughed as they pillaged retail and retirees. Little did they know we would fight back,” Bailey said.
A significant discount has developed in GBTC since February 2021 with the Digital Currency Group (DCG) nonetheless continuing to charge a 2% annual fee.
Those investors are trapped with no way out as redemptions are not allowed, except through a conversion to an Exchange Traded Fund (ETF) which the Securities and Exchanges Commission (SEC) is denying, or through dissolution.
New problems have developed recently however with considerable allegations being made publicly. Zhu Su, the founder of the now defunct Three Arrows crypto hedge fund, said:
“The reason why Grayscale couldn’t reveal addresses for BTC in GBTC is because the provenance would demonstrate they violated SEC rule 144 Securities Act insider/affiliate rules on a massive scale.”
“He’s right,” Bailey added while Cameron Winklevoss of Gemini stated in an open letter to Barry Silbert, the owner of DCG, that “DCG and Genesis are beyond commingled.”
Genesis is another subsidiary of DCG, specializing in lending and borrowing. An account that may belong to Andrew Redleaf of X3 capital states:
“DCG/Genesis knew that FTX and Alameda was insolvent in late May of 2022. Barry and DCG began to AGGRESSIVELY pressure Alameda to pay off a $2.5B loan outstanding to Genesis,” emphasis his.
This account revealed that DCG was being investigated with it claiming there had been some whistleblowers before Bloomberg recently reported the same.
A few days prior to Andrew’s statement on the loan, Zhu said and we quote at some length:
“Market concurrences between FTX + Genesis (SBF + Barry):
1) FTX and Genesis lowered steth collateral ratio from near 100% to 0% on the same day in May, while themselves shorting steth.
2) FTX and Genesis bought unlocking Solana together in huge size pre-cliff, Genesis promising loans.
3) FTX bribed Genesis desk traders with seed allocations on coins like Serum, in return for receiving a better LTV on Serum collateral.
4) Genesis traders routinely shared client info with FTX traders, and vice versa. Many of these became rich (for now) and tried to start funds.
5) Genesis lent billions of client deposits of USD against FTT collateral, while knowing and acknowledging that they could never exit this collateral if needed (Chief Risk Officer resigning in disgust after only 3 months).
6) FTX and Genesis abused their fiduciary privileges and hatched a multi pronged coordinated attack on Luna, including acting interested in and asking to be party to each private bailout attempt for Luna, only to immediately afterward aggressively sabotage any possible recovery plan.
7) FTX returned $2.5b of loans to Genesis in August, and Genesis likely knew or should have known these came from FTX depositor funds both via chain analysis and via asking for financial information, as even after this there were still outstanding loans.”
The Luna part is presumably a first hand account, the rest can not be independently confirmed.
Amid these fairly explosive allegations, Bailey says 4% of the total GBTC shareholders signed up in just one day over the past 24 hours, bringing it to nearly 20% with Bailey claiming they verify any signup that claims to have more than a million shares.
His exact plan however is unclear at this stage with some suggesting this shareholder revolt has no legal standing. Chris Burniske of Placeholder VC says:
“While David is channeling some pent up frustration, my understanding of the Trust documents is this effort has zero legal leverage. Lawyers would know authoritatively.”
Bailey’s response was somewhat vague, stating “not true.” He claimed some of the potential courses of action are “governance focused (i.e. work within the trust docs), some of them are political (regs).”
The signing up site itself also does not have a stated plan, with it claiming one of the goals is “a change in management and a competitive bidding process for new trust sponsors.”
So they want Silbert out. “If I was able to share who has thrown their support behind redeemGBTC it would cause global headlines,” Bailey publicly claimed. “We are going to win.”
Much Smoke, is There Fire?
These are credible actors. Bailey, even Zhu to some extent, and they corroborating each other.
The Alameda loan in particular would increase the Genesis hole and that of DCG to about $4.5 billion, up from $2 billion, but that’s based on the premise there would be a finding that this amounts to a preferential treatment among creditors as Alameda knew or should have known at the point it made this $2.5 billion payment – 70,000 BTC – that it was bankrupt.
Yet even without this addition, Gemini Earn has frozen $900 million worth of customer funds because they were with Genesis which has halted withdrawals due to “liquidity issues,” as in they have no money.
That’s nearing on two months now and lawsuits are flying, with Gemini being sued by their own customers in addition to Genesis.
There was an 8th of January deadline for some sort of resolution, but apparently not much should be expected as they’re now in a staring contest.
Gemini could push Genesis into bankruptcy, and maybe even DCG, but Gemini Earn would still owe this $900 million to their customers. It’s obviously in their interest to get an actual resolution.
The Winklevoss twins could take the loss on the chin. They are worth about $2 billion in combination even at these low crypto prices. They could give half of that to their customers and pursue the rest from Genesis, so limiting the matter to DCG.
The latter has been unable to come up with the funds so far. They owe Genesis about $1.6 billion, though it is structured at arm’s length.
So making this a complicated saga, but if the Trust could be separated from it all, then it would be a very limited matter where the crypto market is concerned.
The assets of the Trust are separate and under the custody of Coinbase which has claimed to have the entire 630,000 BTC.
Any outcome therefore would probably be limited as far as crypto markets are concerned because at worst the assets just go back to the actual owners whom may well hold considering the low level of crypto prices.
Liquidating them for fiat would obviously not be in the interest of shareholders and can well amount to a fiduciary breach considering the potential level of slippage.
The crypto market therefore is kind of ignoring all this price wise, probably because it is not easy to see how the price would be affected at the supply level based on the information already known.
Yet to the parties involved and those creditors of both Genesis and Gemini Earn, they’re currently stuck in limbo without clarity on just how much they have lost exactly, with it very unclear for just how long this can continue.
Article corrected to clarify it is UTXO Management that has $2 million in GBTC, not the Bitcoin Magazine.