Digital Currency Group (DCG) is a venture capital firm that invests and builds businesses in cryptocurrency, and blockchain-related companies. It is founded in 2015 by Barry Silbert and is headquartered in New York. The subsidiary companies of DCG include Genesis (a crypto lending firm), 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 firm that offers investment products for institutional and accredited investors. The firm provides various investment products such as digital currency investment products, and ETFs, that can be bought as shares on OTCQX. The share price mirrors 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 risk involvement. Grayscale makes money by charging a small commission on trading shares and also charging an annual fee.
As of now, Grayscale is the second largest owner of Bitcoin other than Satoshi Nakamoto which amounts to 638,480 BTC.
What happened to Genesis?
Following FTX’s collapse in November 2022, Genesis officially said on their Twitter account that they had lost $175 million, however, they assured that it won’t affect their market-making activities. But within a week they halted withdrawals which caused widespread anxiety among the investors.
The year 2022 had not been good for Genesis, as two companies (Three Arrows Capital and Babel Finance) in which Genesis invested failed miserably which resulted in the loss of millions of dollars for Genesis. This happened in June 2022. FTX collapsed in November 2022 and Genesis was affected. Even though the parent company DCG gave a loan to Genesis to keep the company afloat, it was not enough.
Federal prosecutors are currently investigating the dealings and transactions between DCG & Genesis. Genesis Spokesperson assured that the company operations are done according to federal laws and the current financial crunch will be settled soon.
What happened to Grayscale?
Grayscale Bitcoin Trust (GBTC) is a prominent investment product of Grayscale. GBTC allows investors to follow the movement of Bitcoin without actually owning or holding the bitcoin. GBTC is like a share where the investors can buy, sell and trade just like any other stock.
The amount of GBTC an investor holds is directly proportional to a certain fraction of bitcoin they could have owned. Investors won’t have to take the risk of holding Bitcoin if they are owning GBTC. Grayscale reassured the customers that there is no risk involved and it is a completely secure investment.
The price of GBTC can vary and may be traded at a premium or discount depending on the supply and demand of GBTC shares. GBTC may be sold at a lower price (discounted price) if demand is low and may be sold at a higher price (premium price) if the demand is high. The risk with GBTC is that when there is a downtrend in the market, GBTC will be sold at a discounted price causing a loss for the Grayscale company
After the bull run in 2021, Bitcoin had a bearish year in 2022. This has affected the revenue generation in Grayscale also. On top of that, there are massive withdrawals by investors in every exchange and cryptocurrency investment firm. The ugly truth is that DCG, Genesis, and Grayscale were not prepared for this and hence they halted withdrawals.
How SEC could have helped Grayscale?
Grayscale has done everything from their side to convert GBTC into ETF so as to remove the leverage and thereby remove premium and discounted prices. They have requested this from the Securities and Exchange Commission (SEC) many times. But SEC denied this stating that it might lead to Spot bitcoin manipulation and fraudulent activities. SEC was correct from their point of view and Grayscale has sued SEC for this which will get a final verdict on 3rd Feb 2022.
What is Likely to Happen in 2023?
There is a high chance that DCG may file for Chapter 11 bankruptcy. If that happens they might need to liquidate their assets, but the company cannot just sell off their digital assets so easily and might require more time. The assets of Grayscale might also be liquidated to recover the loan amount.
Winklevoss brothers might 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 are working in the best interest of affected investors and the general public. If there is one big thing you can learn from this prolonged crypto winter is that – “Keep your coins in your own wallet, Be the sole custodian of your coins!”
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