Grayscale refuses to provide a proof-of-reserve for its Bitcoin citing security risks. There are increasing speculations about the financial health of its parent company, Digital Currency Group.
In a recent Twitter discussion about the need for industry openness following the demise of FTX, Grayscale made an effort to allay the anxieties of its investors by assuring them that the rules that apply to its multiple businesses make an FTX-like scenario very improbable.
Grayscale guarantees that every one of its goods has been properly registered as a distinct entity with its own set of rules. They clarify that the rules and laws governing each of its crypto trusts prohibit the sale, lending, or other transfer of the underlying assets.
In a second tweet, Grayscale reaffirms that Coinbase, the only licensed and publicly listed cryptocurrency exchange in the United States, is holding custody of its bitcoin assets.
But now the unpleasant question is raised. How about proof-of-reserves? Grayscale objected for security concerns and declined to do so. They clarify that while Coinbase, as custodian, does carry out routine validations, they would not disclose addresses or any other information deemed private so as not to affect the nature of their products.
Speculations Surround Digital Currency Group and GBTC
Fears of Grayscale collapse first surfaced after Genesis Trading announced that it was suspending the origination and redemption of loans.
Grayscale and Genesis are owned by Digital Currency Group, raising questions about the company’s financial stability. The crypto community made assumptions about how this may impact Grayscale and its main product, GBTC.
Data on hand indicates that GBTC is now selling at a discount of 45.08% to its net asset value. This is a record low partly because DCG, the largest holding, is now dealing with concerns about financial difficulty, this is a record low.
Market analyst Joe Consorti emphasized that the GBTC public filings were not audited. He said that the SEC punished the firm’s accounting firm, Friedman LLP, for failing to disclose inaccurate financial statements. The record-low NAV, according to renowned crypto critic Peter Schiff, also suggests something else. He asserted that GBTC likely leased its Bitcoin to a borrower who was unable to pay it back.
Consorti remarked that DCG had been obliged to purchase back GBTC’s shares as a result of holders such as 3AC and BlockFi dumping shares. Despite the fact that this did not lessen the GBTC discount, it now means that DCG is facing a liquidity crunch.