Digital Currency Group (DCG) is a venture capital firm that invests and builds businesses in cryptocurrency and blockchain-related companies. It was founded in 2015 by Barry Silbert and is headquartered in New York. DCG subsidiaries include Genesis (a crypto credit company), Grayscale (a securities firm), and Coindesk (a crypto news agency).
Genesis provides liquidity to institutional clients and professional traders by facilitating the trading of large blocks of cryptocurrencies like Bitcoin, Ethereum, etc.
Grayscale is a digital asset management company that offers investment products for institutional and accredited investors. The Company offers various investment products such as digital currency investment products and ETFs, which can be purchased as shares on OTCQX. The stock price reflects the price movements of bitcoin prices.
Grayscale’s investment products are backed by Bitcoin and other cryptocurrencies. This product was introduced to expose investors to cryptocurrencies without the involvement of risk. Grayscale makes money by charging a small commission on trading shares and also charging an annual fee.
Currently, Grayscale is the second largest owner of Bitcoin after Satoshi Nakamoto, which stands at 638,480 BTC.
What happened to Genesis?
After the collapse of FTX in November 2022, Genesis officially stated on their Twitter account that they lost $175 million, however, they assured that it would not affect their market making activities. But within a week they halted withdrawals, causing widespread anxiety among investors.
2022 has not been a good year for Genesis as two companies (Three Arrows Capital and Babel Finance) that Genesis invested in failed miserably, resulting in millions of dollars lost for Genesis. This happened in June 2022. FTX collapsed in November 2022 and Genesis was affected. Even though parent company DCG gave Genesis a loan to keep the company afloat, it wasn’t enough.
Federal prosecutors are currently investigating the relationship and dealings between DCG and Genesis. The Genesis spokesperson assured that the company’s operations are in accordance with federal laws and that the current financial crisis will soon be resolved.
What happened to Grayscale?
Grayscale Bitcoin Trust (GBTC) is a premier investment product from Grayscale. GBTC allows investors to follow the movement of Bitcoin without actually owning or holding the bitcoin. GBTC is like a stock where investors can buy, sell and trade like any other stock.
The amount of GBTC an investor holds is directly proportional to a certain fraction of bitcoin they might have owned. Investors will not have to take the risk of owning Bitcoin if they own GBTC. Grayscale has reassured customers that there is no risk and it is a completely secure investment.
The price of GBTC may vary and may trade at a premium or discount depending on the supply and demand for GBTC shares. GBTC can be sold at a lower price (discount price) if demand is low and can be sold at a higher price (premium price) if demand is high. The risk with GBTC is that when there is a downtrend in the market, GBTC will be sold at a discount resulting in a loss to the Grayscale company.
After the bull run in 2021, Bitcoin had a bearish year in 2022. This also affected grayscale revenue generation. On top of that, there are massive withdrawals from investors in every cryptocurrency exchange and investment company. The sad truth is that DCG, Genesis and Grayscale were unprepared for this and therefore halted withdrawals.
How could SEC have helped Grayscale?
Grayscale has done everything on its own to convert GBTC to ETFs to remove leverage and thereby remove premium and discount pricing. They have repeatedly requested this from the Securities and Exchange Commission (SEC). But the SEC denied this stating that it could lead to manipulation of Bitcoin Spot and fraudulent activities. The SEC was right in its view and Grayscale sued the SEC for it, which will get a final verdict on February 3, 2022.
What will probably happen in 2023?
There’s a good chance DCG will file for Chapter 11 bankruptcy. If that happens, they may need to liquidate their assets, but the company can’t just sell its digital assets so easily and may require more time. Grayscale’s assets could also be liquidated to recover the loan amount.
The Winklevoss brothers could sue Genesis for the mismanagement of their investor funds. Genesis is also on the verge of bankruptcy. It had laid off 30% of its employees in 2022.
The bright side is that federal prosecutors work in the best interests of affected investors and the general public. If there’s one big thing you can learn from this extended crypto winter, it’s – “Keep your coins in your own wallet, be the sole custodian of your coins!”
