Grayscale- Balancing the Scales

Grayscale- Balancing the Scales

After the FTX fiasco in November 2022, the asset manager of the world’s biggest BTC fund, Grayscale, assured customers of the security of its assets in a statement. 

The statement, however, also mentioned that the firm would not be making its proof of reserves public, which sowed the seed of doubt in investors’ minds. The downturn of FTX has put the crypto market on edge and has had investors question these mega crypto investment firms. 

Reason to Worry?

The primary reason people are skeptical about Grayscale’s decision not to make its reserves public is because of its sister firm, Genesis. A recent report revealed Genesis to be $1.8 billion in debt, and unfortunately, that figure might go up. Genesis, which halted withdrawals from its lending unit on November 16th, apparently owes $900 million to two separate groups. The first is a group of customers using Gemini’s Earn Program, while the second is a group of creditors. These groups are being represented by law firms Latham & Watkins and Proskauer Rose, respectively.

There seems to be a third group of creditors as well, which includes crypto firms Celsius and Voyager Digital. They have not revealed the number they are owed so far, but it is expected to be presented by their attorneys in the coming days.

Genesis has revealed that it has been holding talks with investors and creditors to agree on a solution for the liquidity crisis.

Investors Keep Faith in Grayscale

Meanwhile, Grayscale has assured its investors that Genesis’s crisis has not and will not affect them. In its statement, it also assured investors that it has not lent out assets to its parent or sister companies and that it has always functioned as an independent entity.

Grayscale manages over $10 billion in BTC, apart from ETH and other digital assets. The firm revealed that all digital assets underlying its products are held by Coinbase Custody Trust Company, LLC. The company refused to publish its proof of reserves, though, citing security reasons. This did lead to speculation that the company might be hiding its financial shortcomings.

But the company’s track record, combined with its recent efforts to highlight all the safety measures taken to secure customer funds, has earned the trust of major investors and market analysts. Big players like ARK Invest continue to increase their holdings of shares of the Grayscale Bitcoin Trust fund (GBTC).

Other mainstream names have backed Grayscale as well. The CEO of Sellix, the Italian e-commerce giant, observed that Grayscale has shown consistent growth over a decade through both bear and bull markets, and he believes that Grayscale will not follow in FTX’s footsteps.

Grayscale CEO’s Words of Solace

Grayscale is the largest revenue generator for its parent company, Digital Currency Group (DCG), whose founder and CEO, Barry Silbert, addressed shareholders regarding all the recent noise surrounding the firm. He stated that DCG was well on its way to $800 million in revenue despite the crypto winter and that all its separate entities were “operating as usual.”

His note further read, “We have weathered previous crypto winters, and while this one may feel more severe, collectively we will come out of it stronger.”

Silbert was one of the earliest Bitcoin adopters and, to this day, remains a trustworthy figure within the crypto community, considering his 28 years of experience in the finance industry.

Before he discovered his love for crypto, Silbert was an investment banker in New York. He was even the CEO of Second Market, a stock trading company that Nasdaq later acquired. Put simply, he gives the community reason to believe that he knows what he’s doing.

Leading the Way for the Crypto Community

Additionally, Grayscale has been making efforts to do good for the crypto community. It has been battling with the Securities and Exchange Commission (SEC) after they rejected its bid to turn the GBTC fund into a spot Bitcoin ETF. This spot Bitcoin ETF would’ve been the first of its kind in the US. 

A spot Bitcoin ETF gives investors direct access to Bitcoin by selling them shares that mimic the coin’s actual price. They can then buy the ETFs on a standard securities exchange instead of a crypto exchange at the actual price of Bitcoin.

The SEC rejected Grayscale’s application on the grounds that the investment manager failed to address concerns about market manipulation and poor investment protection. But an argument could be made that if the bid had been accepted, it would’ve opened the doors for more institutional investments and helped crypto get out of its slump.

Grayscale has filed a petition challenging the SEC’s decision and even proceeded to sue them for what they called a discriminatory ruling. For the crypto enthusiasts hoping for an upturn in the market, know that Grayscale is fighting the good fight on crypto’s behalf. The community can only hope that they succeed and lead us out of this bear market.

Liked what you read? Download the Mudrex App for more crypto content at your fingertips!


The latest from the blog