I’ve been hearing for a while that the Grayscale Bitcoin Trust (GBTC) was the best way to get discounted Bitcoin. One thing always seems to be consistent with that statement: the discount steepens. GBTC’s situation was a little unique before FTX blew up the world: they’re not an ETF which directly trades on the underlying assets value. Instead, they’re a trust that holds spot assets. Right now, there is no mechanism for converting GBTC to BTC, and they have been halted by regulators on that front. This means the “lockup” period is unknown and vulnerable to regulatory impact.
Okay, so why has the discount become so extreme? Well, the big news this week has been the potential collapse of Genesis, the company behind a huge chunk of the lending programs that every CEX seems to offer. Genesis was the organization behind Gemini’s lend program, which was halted this week. The company that owns Genesis, Digital Currency Group (DCG), also owns Grayscale.
Grayscale was quick to point out that Genesis was “not a counterparty or service provider for any Grayscale product,” and they would continue operating as usual. The story gets a little fuzzier from here. Grayscale has its crypto holdings parked in Coinbase’s custody product, and those holdings are attested to by Coinbase. Hopefully we can trust the combined statements of Grayscale and Coinbase.
But why would we? They could just publish the on-chain addresses and we can verify they hold those coins. They refused to do that this week, citing security concerns. But we all know publishing an address has zero security concerns, so that was clearly nonsense.
Though the pricing action doesn’t show it, Grayscale appears to be in a fairly strong position. The truth behind all of this is that Grayscale absolutely prints money. They charge a 2% management fee based on the value of Bitcoin held, not the trading price of GBTC–I’m guessing they’re not too eager to enable redemptions. With that pricing model, it’s likely a large actor in this space would buy them up if they did hit some turbulence.