GBTC discount hits a record 45.2%, prompting some to wonder if Grayscale will be the next black swan.
(Kitco News) - Crypto winters are characterized by an extended period of widespread market weakness that eventually leads to a host of projects turning belly up for one reason or another, such as the lack of funds to sustain their survival. Each winter, the causes are different, but the outcome is the same – capitulation and the call for the death of Bitcoin (BTC).
The newest contagion risk to emerge from the FTX debacle that threatens to plunge the cryptocurrency market even deeper into the doldrums is uncertainty around Grayscale and its flagship crypto product, the Grayscale Bitcoin Trust (GBTC).
GBTC has fallen under increased scrutiny as its discount rate continues to hit new record lows, with the most recent data from Coinglass showing a discount of 45.2%.
Grayscale Investments BTC premium. Source: Coinglass
Matters have gotten even more suspect following a refusal by Grayscale to provide the address details for its Bitcoin holdings as the industry has seen increased calls for transparency in the wake of FTX’s shady dealings.
One of the biggest players in the industry – the Digital Currency Group (DCG) – is further adding to the fear as concerns arise about whether it can survive into the future. The DCG owns both Grayscale and the embattled crypto lender Genesis Trading, and the struggles facing two of its biggest money makers are rightfully causing concerns.
Executives from the crypto powerhouse have repeatedly attempted to reassure the community that things are not as dire as they seem, but the history of similar comments from the likes of FTX owner Sam Bankman-Fried and Terra/Luna founder Do Kwon has made crypto investors far more suspect of such proclamations.
The refusal by Grayscale to provide its address details has only heightened the anxiety that the crypto community is experiencing, prompting many to say that the downfall of Grayscale will be the next major black swan event.
Is the next black swan #GBTC already around the corner?#GBTC holds ~648k #BTC.Grayscale discount off to a record 43% as #FTX spreads great uncertainty.Lots of hysteria in the market and everyone is looking for the 10k #Bitcoin reason.— Stockmoney Lizards ?? (@StockmoneyL) November 20, 2022
Keep calm, bear markets end in the winter! pic.twitter.com/0FawFUFVgt
GBTC hitting its lowest discount on record is further intensifying the fear, which prompted Grayscale to release a statement that reaffirmed that its assets are currently being secured by Coinbase Custody, and provided the amounts of each asset held.
4) All digital assets that underlie Grayscale’s digital asset products are stored under the custody of Coinbase Custody Trust Company, LLC. Read more from @Coinbase’s CFO Alesia Haas, and CEO of Coinbase Custody Aaron Schnarch: pic.twitter.com/InBP9zPDkC— Grayscale (@Grayscale) November 18, 2022
The firm noted that while their decision to not release the specific wallets holding their Bitcoin would “be a disappointment for some,” it suggested that investor panic was no reason to “circumvent complex security arrangements that have kept our investors’ assets safe for years.”
All of Grayscale’s digital asset products are set up as separate legal entities as a way to shield them from issues that arise from any one product, and they are constructed in a way that “prohibits the digital assets underlying the products from being lent, borrowed, or otherwise encumbered.”
Some are now suggesting that Grayscale may end up being bought out should Genesis Trading fail, but at this point that remains confined to the realm of speculation. Grayscale has repeatedly signaled its ultimate intention to convert GBTC to an exchange-traded fund (ETF) but has thus far been unable to as the Securities and Exchange Commission (SEC) has rejected all spot Bitcoin ETFs to date.
This fact has prompted some to lay the blame for some of the biggest events in crypto in 2022 at the feet of the SEC, which has thus far dragged its feet on providing a clear regulatory framework while simultaneously squashing all attempts to create more legitimate digital asset products.
By failing to create an ETF for #bitcoin, the SEC:— Mike Belshe (@mikebelshe) November 20, 2022
- allowed the grayscale -> GBTC trade to rip retail for 5+yrs
- created the GBTC negative premium
- forced most crypto trading outside US jurisdiction
- let FTX's fraud hit millions of Americans it shouldn't have
As for now, the widespread fear gripping the crypto community is largely relegated to speculation, and it will take some time for matters to shake out. Meanwhile, Bitcoin clings to support at $16,000 and Ether fights to hold $1,100 as bulls attempt to prevent further declines.