Topic: Everything you wanted to know about Grayscale BTC Trust but were afraid to ask! - page 19. (Read 17106 times)

Another now optimistic scenario regarding DCG, Genesis, and Grayscale which described Ryan Selkis @twobitidiot, which in his opinion boils down to the following: some of the Genesis creditors convert their claims into preferred shares or new DCG debt, as well as warrants (the scheme under which Warren Buffett supported Goldman Sachs).
In your opinion, is it possible to resolve the tension that has arisen in this way, or will it only delay the inevitable?

https://twitter.com/twobitidiot/status/1595137625001971717


https://twitter.com/twobitidiot/status/1595269302113943554

thing to keep in mind though
whilst you are saying 'while liquidations remains hypothetical"
and then trusting it remains hypothetical because they are making 2% gains..

thats just not secure reasoning to "trust" a financial service.

if you read their user agreement terms of service. them having loopholes of shutting down at THEIR discretion. changing terms at their discretion blocking access at their discretion. changing the product at their discretion. is not really giving customers any say/choice . or protection from any hypothetical.

if you are using a service where your security of asset is "trust they wont do it because they are making profit"

where there is no contract of ownership of you to the asset.. then find something else to invest in.. like actual bitcoin

contract of a share. where the shares: product, utility, value, access is all "at greyscales discretion" is ownership of.... hope

oh.. and by the way.
the 2% gains. are not actual 2% gains

its just a 2% less rating of the shares. meaning customers get 2% less

in short if there were (random number)
500btc in trust allocated to shares
next year 490 btc are share allocated and 10 are free to be clawed back by grey scale

greyscale is not earning more money above/outside the 500btc allotment. they just dont have to allocate as much to the customers

i say this because there is no real mechanism that guarantees customers would get this 490btc
because.. wait for it..
all 500btc still remain property of greyscale at their discretion

they are not gaining value because they already own and hold all 500btc value. instead they are reducing their liabilities by 2% a year

You are too quick fillippone.  I edited my post while you were responding to me.. but at the same time, I think that the essence of the matter is that it still remains a bit unclear to me, even though I think that I understand what you are saying, including your clarification, and how your understanding seems to differ from what James Seyffart (the Bloomberg author) is saying... and yeah, I believe that you are likely more correct than Seyffart on the point that distribution may well be able to take place in ways other than liquidation on the free market or even over OTC..but yeah, maybe there is some specific authority on the topic? - or maybe the whole liquidation or dissolution matter remains pretty hypothetical in terms of whether GBTC has any motives to actually dissolve the fund absent some kind of a revolt (or do we call those pending lawsuits?) (which surely might be happening) when they (GBTC) are ongoingly making 2% annually from the current set up (in spite of some loss of confidence about whether the funds/underlying BTC are actually there).

Edit:  
By the way, I just saw this tweet from Brian Armstrong in which he is representing that Coinbase holds around 2 million BTC - which aligns with their public 10Q filings (as a public company).   Shahzadafzal had posted a link to that tweet in the WO thread.

That representation from Armstrong makes sense, even though he is not exactly showing the addresses on the blockchain - especially since I had previously made a ballpark statement estimating that Coinbase should have at least a minimum of 1.1 million BTC based on the exchange information in the Glassnode listing and their purported GBTC related BTC holdings.  Maybe at some point there will be better ways to confirm / verify those kinds of representations on the blockchain - especially if we are ongoingly experiencing liquidity, solvency type happenings that are undermining public confidence in regards to if representations are verifiable (or true).

If you click on the image then another link opens, then you have to click again on another image and go to point 7, there it is explained how the liquidation of a trust works.


This is what I understood, and I do agree: I think this one is the most convenient way to dissolve a trust.
The article's author has a different opinion, as he thinks dissolution passes only via liquidation.
In reality, I think he didn't correctly evaluate the specific bearer nature of the underlying: while it is difficult to transfer 100 apple shares or 100 ounces of gold to every shareholder, it is immensely easier to distribute 100 BTC.

I read elsewhere the author was going to study the question more. I will keep you updated.

Ok. I looked at your reference of key point number 7 in which the Bloomberg author (James Seyዽart) seems to be suggesting that GBTC has to liquidate and you are saying that he is wrong... Which section (or authority) says that GBTC would have the option of just distributing bitcoins to the shareholders?  

I understand that there could be a variety of relations regarding shares that might have voting rights and shares that do not and how many shares are likely to vary considerably; however, to make it simple, let's say for example that GBTC  has 634k bitcoin currently under management, and they have 6,340 members who each own shares that would equal 100 BTC each.

So if there had been a decision to dissolve the trust and to distribute the bitcoins to the shareholders in accordance with their claims to the BTC under management, then let's say that each of the 6,340 member might receive  98 BTC (instead of 100 BTC) - and perhaps the 2% (or 2 BTC) would end up getting subtracted from the distribution  amount, and maybe these shareholders would all feel better with that kind of a settlement because it would be worth the BTC spot price rather than the 42% discounted price that they currently would get through their GBTC shares?  

Even though some of the shareholders might neither be prepared for self-custody or might not be able to take such BTC into self-custody because they happen to be an institution that is ONLY able to invest (or custody) into pre-approved asset classes (or custody arrangements) such as trusts and GBTC qualifies for that, so in that regard, some of them might not be able to take self-custody.    

But your point seems to still stand that there may well be an option for GBTC to directly distribute the BTC to the shareholders rather than liquidating those BTC on the market (or through OTC) first?  Is that what you are saying, fillippone?  Not that anyone is saying that direct distribution or even dissolution of the GBTC is likely at this point.

Here you go:



Actually, one of the most interesting reads I made recently about GBTC
The key point is Number 7.
I am not sure the analyst got things right, as liquidation is not necessary upon the dissolution of the trust.
The most convenient option is the distribution of Bitcoins in kind to every shareholder.

if grey scale doesnt get a ETF soon then the business model is dead anyway

as for the thing about the hurdles meaning it would have to sell on open market(their excuse of reason not to liquidate)

wrong they already mentioned for years they do deals for the collateral on the closed O-T-C market. not the open market

if the only fear of not doing something is the implied fear customers would have of the open market effect.. PFFT i call BS
(i mean bull crap not barry silbert)

thirdly the "shares" they give to customers as seen by the terms of service do not amount to a bitcoin allocation guaranteed by fix-term-contract. nor does having shares guarantee access to their webpage/accounts page(BIG RED FLAG)

 those shares do not even buy you voting power of decisions to take the trust forward or new direction. so the share a are not ownership right shares of the trust. they are just pegged tokens of a market rate greyscale change at their discretion

big red flag
if a bank wanted to close you down. they would still allow you into the bank still allow you to check your balance and make a full withdrawal. they just wont offer you any of their other services. . but they have to allow you access to get your funds out. grey scales terms are saying they can shut you out completely for any reason they like.. thats bad business

if greyscale went pop or about to go pop. all they have to do is trace move the discount/premium to where a share only gets you 1 sat per $100. deny all account access.. and keep the coin

best advice. if you can exit at break even or profit do so and go buy some real bitcoin

#NotYourKey-NotYourCoin

I don't claim to either have read all of the documents or to necessarily know all of the details; however, the below quote strikes me as either bullshit, an exaggeration or a misstatement.

"Plus, liquidating GBTC would also mean open market selling BTC currently worth $10.5 billion at a 45% discount"

Bullshit.

The GBTC shares are currently discounted in reference to the BTC spot price; however, if the Trust were forced to sell the BTC on the market, the 45% gap would immediately be arbitraged away up to the spot price.  Sure selling off 634k-ish BTC is likely to bring down the BTC price if either people are aware that it is happening and/or if it could not be spread out over several weeks, if not spread over months (depending on the interpretation of the word "promptly" as ccontrasted with the Trust's obligation to get the "best fair value possible".

Of course the portion of the dissolution requirements cited by fillippone remains relevant stating that the trust has an obligation to "liquidate the Trust's Bitcoin as promptly as possible while obtaining the best fair value possible."


I am starting to get the sense that more is being made out of this whole GBTC mess of a situation than it deserves, including that degentrading touched on some of this but comes off as being in a kind of a panic mode.  Let's say that there were a variety of fuck ups; however, GBTC still holds most, if not all of their 634k BTC, yet GBTC owes Genesis $1 Billion.  

Sure that is a lot of money to owe, but it still seems like a BIG so fucking what, as long as DCG still has the 634k BTC (currently $10.5 Billion) and are generating 2% fees off of that.  As degentrading suggests, that would be 12,680 in fees every year, and at current BTC prices, that is around $203 million per year.. which would mean that they could fully pay off $1 billion in debt in 5 years.. that is if the BTC prices were to stay at around $16k for the next 5 years.   Even if BTC (and perhaps even crypto) seems to be going through a a kind of debt and liquidity crisis, if such $1 billion debt exists, it's not an unmanageable amount of debt given GBTC's current cashflow from their holding the 634k BTC under management.

Edit:  PS:

Of course, as I attempted to suggest in my earlier post, Coinbase needs to hold somewhere north of 1.1 million bitcoins at the time of this post or any other relevant time that such an audit were to occur if Coinbase is not misstating in regards to their own BTC holdings and/or overly co-mingling separate categories of funds (530k btc of their exchange funds and 634k of greyscale trust funds and presumably they could have other custodial relations which hopefully they would be able to show each and all of these categories of funds simultaneously to any legally responsible auditor - and hopefully Coinbase also would be making some reasonable amount of money by custodying those kinds of funds rather than merely being a liability for them - of course, with the exchange they earn money from the trading, but if customers do not trade then those funds may well just be liabilities that they are able to somehow cover the costs with what they earn in their trading fees).

So Grayscale has become something of a time-bomb now?

I don't think it will burst in this cycle, unless they did something insanely stupid like loaning a majority of their assets to a risky speculative gambler of a trading company. Which is exactly what FTX did.

Furthermore, GBTC is not in a bubble or balloon, because it is trading less than the nominal value of BTC. Usually, things that go bust have inflated security/token prices.

There is one piece of news that is doing the rounds about Grayscale.
I saw it misquoted almost everywhere.
It It is a very interesting read,, I would like to suggest everyone to read it in the longform version:

3AC, DCG & Amazing Coincidences


Spoiler:

The centre of all this scheme is the first trad we described here on the trade, only made on steroids with circular posting of the collateral back and forth between the same entities.

In short

• 3AC borrowed BTC from Genesis (which is DCG owned entity)
• 3AC contributes those BTC to gain “in-kind GBTC shares)
• 3AC instate the trade:
  
  • 3AC is long GBTC shares
  • 3AC sells the future to offset the directional premium
• 3AC waits 6 months for the lockout period to end.
• After 6 months 3AC unwind the trade:
  
  • AC is sells GBTC shares
  • 3AC buys back the future to offset the directional premium
• 3AC maps the lending fee to Genesis

This trade was done leveraging 3AC, and wasn’t anymore sustainable when premium started collapsing as a self-fulfinning mechanism when the required margin was tightening and the trade wasn’t profitable anymore, before turning in an actual loss.
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But while we are talking about the possible bankruptcy of Genesis, they, together with Digital Currency Group, own 10% of GBTC shares and can sell them for short-term liquidity replenishment and for some time to relieve tension regarding the liquidation of GBTC.
https://www.marketwatch.com/story/bitcoin-tumbles-to-fresh-lows-and-grayscale-trust-discount-worsens-as-genesis-denies-imminent-bankruptcy-11669075511?siteid=yhoof2&yptr=yahoo

https://twitter.com/EricBalchunas/status/1594684328071634944


But we can also get acquainted with a more pessimistic forecast on Twitter @hodlKryptonite where he described everything in detail:

https://twitter.com/hodlkryptonite/status/1594610702517669888

Let's talk about dissolution.
During the last few days there has been a constant chatter on Twitter about Grayscale dissolution.
Dissolution means the act of unwinding the Trust, reimbursing the subscribers of their share’s NAV
One of the best article to understand what we are talking about is the following:

  Grayscale Liquidation Could Unleash A Bitcoin Armageddon


Given the sheer size of the GBTC holdings, in case of a forced sell the impact would be massive:
The worrying part is the lack of willingness of giving transparency about reserves:

 

---

What happens in the case of a dissolution? Well, not much guessing in this case, there are precise sources where you answer it.
 
Firstly, there is a document by GBTC itsel from on the SEC website:

Source
This documents says it’s upon discretion of the Sponsor to redistribute directly the underlying assets (or variations of) or the proceeds of the sales on the market.
Actually, this is what it is happening right now as, Grayscale is dissolving a fund in these precise days (this could have sparked interest in the scenario of a GBTC dissolution.
Grayscale Investments Begins Dissolution of XRP Trust Citing Ripple SEC Suit
 
The sequence of events in this case is the following Grayscale sells the XRP in the market and the proceeds of the sales are shared between the shareholders, of course the burden of the slippage is o their shoulders:

This is a decision that ultimately favours the investors as:

This to mean it is not a given fact the same path would be followed in the event of a GBTC dissolution.
 
 
So, What’s next?
 
An idea came from our mutual friend Nic Carter:


The idea is of going long the GBTC shares at discount, selling the future in same amount  against it and profit from the closure of the Discount, irrespective of the final bitcoin price.
 
As noted in the comments, there  are a few additional costs to care about, as the short position needs a financing (margin, financing costsare all adding to the costs of the trade).and also the long positions involves taking risks as counterpary risks.

i understand that they have coins in a multisig inside a coinbase wallet meaning that signing a message to prove control of addresses is complex..

but atleast displaying the addresses which auditors/regulators can check could benefit alot of people.. EG they can promote a verification address of a vanity address 1GBTCProof.. and move some coin to it and back again

more concerning. their promotions is that buying greyscales shares "is buying bitcoin"
yet

soo.. the shares do not represent bitcoin.
users having shares dont own btc

you can usually spot the flaws of an entity that pretends the entity is owned by customers(share holders). when its not the share holders that vote/come to consensus to pivot the entity in a new direction at a good/bad situation.. but a ceo of the parent company making sole discretion decisions based on whats best for the parent company(greyscale)

..

if greyscale disappear. or their excel/database of investors gets deleted.. . there is no legal swap to be given 0.09x btc by coinbase(who hold the coin) that you thought you were investing in. even if you were to show coinbase a share certificate or let then see your screenshot of a recent share holding on account they wont release the coins to you

yep folks you are not buying bitcoin when you buy GBTC.
its a business "promise" of one day getting a matched 0.09xbtc per share, but those agreements can change and they can veto the deal, with multiple excuses

 the coins of BTC remains greyscales and you are just buying shares that are not backed by BTC, but of a company brand valuation of collateral that suggests a moving price of its company collateral value which it will not disclose the reserves of said collateral

when buying a share you are not gaining ownership privilege of an allotment of sats.
the sats are owned by greyscale

Wow.  That's amazing that it is possible that GBTC 1) does not have the coins that it claims to have, 2) is way under (matched in the case that some of the coins have gone missing or were stolen), 3) is not solvent, and/or 4) might be a fraud.

Conjectures, but would be a pretty BIG blow if any of these (except perhaps #2 ) is true.  It would be understandable that #2 could be true - especially based on possible custodial relationships that could have gone bad somewhere along the line, but it seems problematic if all of th GBTC's coins might have been held in one custodial relationship that is not sufficiently secure.

For example, at one time I had heard that GBTC has some kind of a custodial relationship with Coinbase, and we know that Coinbase has engaged in some weird behaviors in recent times, too.   The Coinglass data shows that currently Coinbase has around 530k BTC on its exchange, but that likely does not include the extent that they might have custodial relationships and if 600k GBTC coins might be held by them?  I would imagine that it would not be wise to keep all coins in one custodian - unless there was some kind of multi-signature way to assure that there is no way that coins could not move absent a decently scrutinized procedure.. .. .like liquid's procedure that requires the collusion of those unlikely to collude, no?  

In recent times, we have seen so much sloppiness by supposed professionals which may well cause plenty of us to wonder about the professionalism of some people who hold themselves out as supposed professionals.. and then if the system ends up going sour.. we see so much contagion in which there is a mixture of ordinary sloppiness that might not usually get caught up in these kinds of crazinesses because redundancies will have tendencies to catch them before they completely fall, but then the redundant systems are found out to NOT EXIST.. .

So redundancy cannot save the good-intended sloppiness (if such a thing is possible) if the redundancy did not exist, and everyone else expected that someone else would have had done their due-diligence.. but it seems as if no one did their DD.

Against the background of problems with the parent company Digital Currency Group related to the suspension of withdrawals from Genesis Global, the discount on the net asset value (NAV) of GBTC reached 45.08%. Adding fuel to the fire is the refusal of Grayscale Investments to provide evidence of reserves, citing security reasons.
https://twitter.com/Grayscale/status/1593737745364652032?



It can also be seen that the page listing the members of the Digital Currency Group team has been deleted https://dcg.co/page-not-found / you can view the archive page https://web.archive.org/web/20220714194441/https://dcg.co/who-we-are/

A bit of reasoning about the situation and possible causes from one of the Coindesk authors Andy Edstrom on his Twitter
https://twitter.com/edstromandrew/status/1594110325866909696

You can convert btc.csv to btc.html and then just open the file in chrome, but the view is not very convenient and it turns out to be very long, it's easier to create a local table in excel on the data tab /create a query / from a file / from csv so it's more convenient to look at and you can choose for each year starting from 2019 and then select the desired date.

HTML:


Excel:

greyscales page has tables, and $valuations and pdf accounts
it says a aum of $10.57b (translates to ~635k btc)

seems a little convoluted to not just have a bitcoin address as the reserves proof. instead of a weird AUM with a small print disclaimer needed to explain it

does anyone know the btc address of the reserves
i know they say "coinbase is out custodian"
but anyone have the actual btc addresses

It's a never-ending drama!



Premium is definitely headed south:



Please GBTC SHTAP!

At least someone is trying to catch the falling knife:

Ark Invest picks up $2.8 million worth of Grayscale Bitcoin Trust shares

I am sure a 2.8 million investment is nothing more than a small chip for them, but I guess they just want to plant a flag at -39% discount. It makes sense: in case of Bitcoin rally, and maybe renewed interest in GBTC tightening the spread, buying BTC at 10k has a meaning!

GBTC is a token of a pegged BTC pegged at a discount

however greyscale. the holding company.. has holdings in other tokens too
https://grayscale.com/assets-under-consideration-and-current-products/

we witnessed previously how other cryptos failed in last couple years and greyscale(company) had to do some asset shuffling earlier this year  to balance out the losses(reaction to the 3arrow capital(luna/terra) fiasco)

its worth noting..
greyscale is part of DCG... and DCG is invested in FTX
https://dcg.co/portfolio/#f

so although GBTC might/might not see some change to its pegged discount(no real drama) of GBTC token

greyscale aka DCG might see losses of the greyscale company investments at their internal management level.