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Breaking News: WLFI Price Dips 7% As Eric Trump Leaves World Liberty Treasury Company ALT5 Sigma

Grayscale Liquidation Could Unleash A Bitcoin Armageddon

Jake Simmons
Jake Simmons
1 year ago
3 mins read
Armageddon Bitcoin

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The FTX Contagion effects do not even stop at the largest institutional Bitcoin product on the market, the Grayscale Bitcoin Trust (GBTC). As a result of the bankruptcy of Sam Bankman-Fried’s crypto exchange, the discount to the NAV of Grayscale’s GBTC fund has fallen to around -40%.

As recently as the end of 2020, GBTC was trading at a premium of +40%. However, in January 2021, the trend reversal occurred when Grayscale’s Bitcoin fund traded at a discount for the first time. Since then, GBTC has been on a downward slide.

Bitcoin gbtc premuim
Bitcoin GBTC. Source: CNN Business

GBTC’s largest owners include Cathie Wood’s ARK Invest (0.85%), Horizon Kinetics (0.34%), Simplify Asset Management (0.06%) Systelligence (0.04%), Parkwood (0.04%), Emerald Mutual Fund (0.03%) and Rothschild Investment (0.01%), according to CNN Business.

Doomsday for Bitcoin

Recent events have led Grayscale Bitcoin Trust to become potentially the single biggest risk to the Bitcoin market. As NewsBTC reported, Genesis Global had to pause all withdrawals for its lending business on Wednesday due to “unprecedented market turmoil.”

This is concerning for the Grayscale Bitcoin Trust in that Genesis Global served as the liquidity provider for the trust. Genesis Global’s parent company is Digital Currency Group (DCG). This in turn is also the parent company of Grayscale.

Shortly after the Genesis announcement, Digital Currency Group clarified that the matter would have no impact on its own business. DCG stated that Genesis is not a service provider “for any” Grayscale product.

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Furthermore, the company asserted that it does not lend, borrow, or pledge Bitcoin, and that its custodian – Coinbase – is prohibited from engaging in such activities. In addition, SEC and OTC markets reports and audited financial statements are filed.

Grayscale products continue to operate business as usual, and recent events have had no impact on product operations.

The assets underlying $GBTC and all Grayscale products remain safe and secure, held in segregated wallets in deep cold storage by our custodian Coinbase .

Still, the community is bellyaching. A dissolution of GBTC could mean Armageddon for Bitcoin. The collapse of Terra Luna, on the other hand, would have been fun.

The Grayscale Bitcoin Trust currently holds 634,000 BTC. The Terra Luna Foundation “only” liquidated 80,000 Bitcoins, and still managed to crash the BTC price from $40,000 to $20,000.

As Ryan Selkis reported, DCG is in a liquidity squeeze. “Appears holding company’s (DCG) liquid assets are below liabilities. As a result, it looks like DCG is looking to raise outside funding”. However, this tweet is now deleted.

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The Bitcoin community is now demanding proof that Grayscale actually holds roughly 634,000 BTC in reserve at Brian Armstrong’s Coinbase. However, neither Grayscale nor Coinbase have shown any reaction so far.

All that is currently available is a CSV file that is updated daily. As analyst Dylan LeClair explained, it should be relatively feasible to produce a proof of reserves if all BTCs are held at Coinbase.

Does anyone know of the addresses for the 630k BTC in $GBTC? Are there some form of proof of reserves and if no, why?

We have a fully transparent public ledger so we can audit this stuff.

All I can find is a CSV file that updates daily. Why not publish the addresses?

— Dylan LeClair 🟠 (@DylanLeClair_) November 17, 2022

But criticism also heads towards the U.S. Securities and Exchange Commission. If chairman Gary Gensler had approved the conversion of GBTC into an ETF, the Armageddon scenario would not even exist.

Instead, Gensler preferred to reject spot Bitcoin ETFs and flood the market with paper BTC. The FTX fiasco may also contribute to the lack of approval for a spot ETF in the near future.

Meanwhile, Chris Burniske, partner at Placeholder and former crypto chief at ARKinvest, tweeted that fears surrounding the unwinding of GBTC and ETHE are unfounded, an example of hysteria.

He retweeted Bob Loukas who wrote that the trust will not go away as it is a money printing machine.

They generate like $700m in fees and investors can’t stop it. […] They could borrow billions against that cash flow.

Also, You’re not killing the goose to save Genesis. They’re fire-walled.

At press time, Bitcoin investors seemed to agree with Chris Burniske. BTC remains in a wait-and-see mode.

BTC USD
Bitcoin price does not move much in the 1-day chart. Source: TradingView
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Jake Simmons
Jake Simmons

Jake Simmons

Jake Simmons, a dedicated crypto journalist, has been passionate about Bitcoin since 2016 when he first learned about it. Through his extensive work with NewsBTC.com and Bitcoinist.com, Jake has become a trusted voice in the crypto community, guiding newcomers and seasoned enthusiasts alike towards a deeper understanding of this dynamic field.

Read more

His mission is simple yet profound: to demystify Bitcoin and cryptocurrencies and make them accessible to everyone.
With a professional career in the Bitcoin and crypto scene that began right after graduating with a degree in Information Systems in 2017, Jake has immersed himself in the industry. Jake joined the NewsBTC Group in late 2022. His educational background provides him with the technical prowess and analytical skills necessary to dissect complex topics and present them in an understandable format. Whether you are a casual reader curious about Bitcoin or an investor seeking to navigate the latest market trends, Jake’s insights offer valuable perspectives that bridge the gap between complex technology and everyday usage.

Jake is not just a reporter on technological trends; he is a firm believer in the transformative potential of Bitcoin over traditional fiat currencies. To him, the current financial system is on the brink of chaos, propelled by unchecked government actions and flawed Keynesian economic policies. Drawing from the principles of the Austrian school of economics, Jake views Bitcoin not merely as a digital asset but as a crucial step towards rectifying a failing monetary system. His libertarian views reinforce his stance that just as the church was separated from the state, so too should money be freed from governmental control.

For Jake, Bitcoin represents more than just an investment; it's a peaceful revolution. He envisions a future where Bitcoin fosters a sustainable and responsible financial framework for generations to come. His advocacy is not about opposition but about evolution, about laying the groundwork for a system that prioritizes transparency and equity over secrecy and inequality.

As a journalist, Jake’s articles are crafted with the precision of a scholar and the passion of a true believer. He provides not only news but also thoughtful analysis that connects the dots between daily developments and larger economic theories. His work is a beacon for those lost in the technical jargon often associated with crypto discussions, illuminating the practical implications and benefits of these technologies.

In summary, Jake Simmons is not just reporting on a revolution; he wants to be part of it, fully committed to enhancing public understanding and adoption of Bitcoin and cryptocurrencies. His work is more than just a collection of articles; it’s a resource, a guide, and a companion for anyone ready to explore the potential of this digital frontier. Whether you are taking your first steps into crypto or are a veteran looking to stay on top of the latest trends, Jake’s insights provide clarity and foresight in an often unpredictable industry. Join him on this journey to reshape the world of finance, one post at a time.

You can engage with his latest takes on Twitter: @realJakeSimmons.

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Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.

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Reason to trust

Strict editorial policy that focuses on accuracy, relevance, and impartiality
Created by industry experts and meticulously reviewed
The highest standards in reporting and publishing
How Our News is Made

Strict editorial policy that focuses on accuracy, relevance, and impartiality

Ad discliamer

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