‘Grayscale Reduction’ widens to 43% as FTX contagion spreads

‘Grayscale Reduction’ widens to 43% as FTX contagion spreads

Buzz Update ‘Grayscale Reduction’ widens to 43% as FTX contagion spreads

Shares of Grayscale Bitcoin Trust (GBTC), the world’s largest exchange-listed crypto fund, are trading at a new all-time low of 43% against the underlying bitcoin price (BTC).

Crypto analysts are speculating on the reason, but the added pressure comes after Genesis Global Capital, a branch of Digital Currency Group (DCG), owner of Grayscale Investments, which manages GBTC, announced this week that it stop customer withdrawals from his loan unit — resulting from the fallout from the collapse of Sam Bankman-Fried’s FTX crypto empire. (CoinDesk is an independent subsidiary of Digital Currency Group, known as DCG.)

Grayscale Investments reassured investors Wednesday that Genesis was “not a counterparty or service provider for any Grayscale product” and that Grayscale products would “continue to operate as usual.”

GBTC shares have not traded at a premium to underlying bitcoin since March 2021, according to data from Coinglass, and the the discount has expanded this year as well as the distress in the crypto markets and the refusal of the United States Securities and Exchange Commission to authorize a conversion of the fund into an exchange-traded fund.

GBTC is an investment vehicle that allows US investors to gain exposure to BTC price movements without buying the asset itself. Crypto fund Three Arrows Capital was a big holder of GBTC, and told Bloomberg in July that premium arbitrage was one of the factors that led to its collapse earlier this year.

For some investors, the recent widening of the discount may have made the vehicle even more attractive: Bloomberg reported that Cathie Wood’s Ark Investment Management purchased over 315,000 shares worth approximately $2.8 million worth of GBTC stock earlier this week.

Genesis’ move this week sparked speculation on line that Grayscale could change its current strategy, which is to keep the fund in operation while sue the United States Securities and Exchange Commission on the agency’s rejection of the ETF conversion.

According to QCP Capital, many observers now expect DCG to “use the most liquid part of the business – Grayscale – to shore up Genesis and other parts of the business”.

“We had canceled a potential sale of GBTC’s BTC assets in our outlook for 2022, although we did not expect it to be under such circumstances,” QCP said in a note on Friday.

The friction is that Grayscale would then have to waive a contractual fee stream, currently 2% of assets under management.

There is also the matter of DCG’s own holdings in GBTC. In October 2021, DCG said in a announcement he had purchased $388 million worth of GBTC stock.

QCP said that “those who expect GBTC to authorize a one-time buyout for Genesis to meet liquidity needs are misguided, as it must be done with SEC approval.”

“With all of the SEC’s opposition to GBTC this year, we certainly don’t expect that to happen anytime soon,” QCP wrote. .”

Neither Grayscale Investments nor Digital Currency Group responded to CoinDesk’s request for comment.


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