Institutional cryptocurrency investment vehicles are not as popular as they once were. The Grayscale Bitcoin Trust (GBTC) is showing an all-time -45% discount to Bitcoin (BTC), which it is believed to be correlated with. Other than the bear market, what are the reasons for this fall? What are the risks in the crypto market? We explain to you.
Grayscale GTBC at 45% off
There is currently a threat hanging over the cryptocurrency market. the Grayscale Bitcoin Trust (GBTC)considered the largest cryptocurrency investment vehicle dedicated to institutional players, seems in bad shape and may fall.
Although it is supposed to be correlated with Bitcoin (BTC), GBTC is currently 45% off and even passed the 50% mark on Monday morning. It keeps printing low for several weeks. Concretely, we consider this asset at a discount when its price is lower than the NAV (net asset value, here Bitcoin) and in a premium when it is higher.
The GBTC discount continues to expand
Launched in September 2013, GBTC is a security offered to investors a way to get exposure to bitcoin without actually buying it. Money from institutional players is collected and used to buy bitcoins, which are then held in a fund owned by Greyscale.
In other words, the bitcoins are not held by the investors, but good Grayscale. Faced with the recent decline in GBT, many people have begun to question the good management of Greyscale, saying that the company would not actually own bitcoins.
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Does Grayscale really own BTC?
The question everyone is asking right now is this: does Greyscale have its own bitcoins? For information, the company is supposed to keep 634,000 BTC, or $10.2 billion at the current price. If this were not the case, it would obviously be disastrous as the risk of market capture is huge.
In response, the company spoke this Friday, November 18 in a press release entitled “Safety, Security and Transparency ”, also available on Twitter as a thread. The company wanted to reassure its investors:
“Greyscale’s digital asset product holdings are safe and secure. The balances are reflected in historical public records and have been assessed by our third party auditors. »
However, the words did not lie, quite the contrary. Basically, Greyscale does not want to disclose the addresses publicly holding the bitcoins for “security reasons” which seems difficult to justify. It didn’t take long to set things on fire.
6) Coinbase often performs chain validation. Due to security concerns, we do not make such on-chain wallet and certificate information publicly available through cryptographic Proof of Reserve, or other advanced cryptographic accounting procedure.
—Grayscale (@Grayscale) November 18, 2022
Despite urging investors for a few days, Grayscale confirmed this Monday morning that it would not publish the addresses of its portfolios. Hours later, Coinbase explained Custody regularly review the assets owned by Greyscale through chain validations. I’m not sure this protection will be enough to calm the storm.
Coinbase performs regular “on-chain validation” to confirm the existence and security of the exact amount #Bitcoin pic.twitter.com/7rbiPq43yZ
— Bitcoin Archive 🗄🚀🌔 (@BTC_Archive) November 21, 2022
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Genesis, CoinDesk, Greyscale: dangerous liaisons
This complex situation for Greyscale is a more general part of the major crisis currently underway Trade Genesis. This company, which was already in trouble after the debacle of Three Arrows Capital (3AC)was recently suspended due to his own exposure to FTX (up to $175 million).
Except that Genesis Trading, like Grayscale (and incidentally Coindesk), is part of the Digital Currency Group managed by Barry Silbert. According to some rumours, the two entities could carry out some operations in order to save Genesisputting Greyscale in an uncomfortable position.
But it would go even further. As previously explained, it is several months ago from institutional clients reduce exposure to cryptocurrencies by selling their GBTC (with a percentage loss, since it has a discount).
This phenomenon is even more pronounced with the collapse of certain large entities, such as 3AC or BlockFi who had to sell 100% of their Grayscale jobs.
However, it appears that the Digital Currency Group they made the decision to buy the GBTC themselves, therefore take advantage of the reduction, without modifying, however, the supply of Bitcoin kept behind. Manipulation by the DCG group holder of the largest own investment product.
Bitcoin Trust (GBTC) Product Large Scale Investors Chart.
However, despite these various operations, the price of the GBTC did not hold. On the contrary, it continues to fall and at the same time drags down the positions of the DCG group. However, faced with the Genesis turmoil, the group must receive 1 billion dollars.
Faced with the current context, it is difficult to imagine that investors would be inclined to lend this amount to GDC. In other words, they will definitely have to sell their GBTCs, accusing the offspring of huge losses. This obviously involves risk drop significantly in the price of Bitcoin and take it under $10,000.
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Grayscale challenges the SEC
Earlier this year, Greyscale attempted to convert the GTBC into an Exchange Traded Fund (ETF), a similar investment vehicle which can be traded on the stock exchange and tracks the price of a basket consisting of one or more assets.
A Grayscale Bitcoin ETF offering would allow the institutional players to redeem their shares, which would affect the quantity of shares in circulation and allow slowly. reducing the price gap between GBTC and BTC.
But the US Securities and Exchange Commission (SEC) blocked Grayscale’s efforts. thus ending all “spot” ETFs to date (related to the market price of Bitcoin). Conversely, the US financial watchdog only allows futures ETFs (linked to derivative contracts on the future price of bitcoin).
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Source: YCharts, Grayscale Release
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Lilian Aliaga
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