Grayscale, the market’s largest issuer of bitcoin funds, has been scrutinized after rumors that the industry’s risk situation is starting to take its toll on its parent company, the Digital Currency Group.
Grayscale’s Bitcoin Trust Fund (GBTC) continues to trade at a discount of around 43%, trading at $9,500 with the spot price of bitcoin at around $16,800. Additionally, the company’s Ethereum-based ETHE fund is similarly trading at less than $720 at a discount of over 40%.
The fact that both crypto funds are trading at low prices is due to the lack of demand from institutional investors. Additionally, the negative gap between discount ETFs and spot prices for BTC and ETH throughout 2022 continues to deepen with concerns about the financial health of parent Digital Currency Group.
Does the digital currency crisis affect the digital currency group?
This week, cryptocurrency group Genesis Trading announced that it will halt withdrawals on its credit arm due to liquidity issues. The fact that the company, which provides liquidity to many companies in the cryptocurrency market, experienced such a negative impact negatively affected many centralized crypto platforms, especially Gemini.
In a statement, Genesis stated that $175 million of assets on the FTX platform remained closed and the shortfall was closed by a $140 million allocation from the Digital Currency Group. However, the pending withdrawals have raised concerns that things are not going well for the company. The news in the market also contains some indications that the company is in a difficult situation. In its news on the matter, The Wall Street Journal wrote that Genesis needs $1 billion to cover customer withdrawals by next week.
All these developments raise questions about the possibility of problems in the financial position of the cryptocurrency group.
How does the embarrassment of the Digital Currency Group affect Grayscale?
According to some market opinions, the parent company’s liquidity crunch and the failure to eliminate the negative spread in Grayscale crypto funds could lead to a liquidation of funds in the worst case scenario. In the event of a possible liquidation, holders of funds can be paid in dollars or related digital currencies.
As a result, Grayscale currently owns 633.7 thousand Bitcoin (about $10.5 billion) and 3.05 million Ether (about $3.68 billion), according to Coinglass data. This raises fears of a dangerous drop in the crypto markets in the event of a possible liquidation. To make a comparison, 80,000 BTC was liquidated in the Terra crash, and after the panic that occurred at the time, the price of BTC dropped from $40,000 to $20,000.
On the other hand, Grayscale uses Coinbase custody for its Bitcoin and Ethereum assets. In the coming days, a report from Coinbase (NASDAQ:COIN) may be presented stating that these assets are safe.
However, some commentators who are optimistic about this issue believe that liquidating digital funds will cause significant harm to the company, and do not see this approach as unlikely. Alternatively, it is believed that the company may sell fixed assets to cover the loss.