Recently, Grayscale Bitcoin Trust (GBTC) shares were trading at a discount of 45% below the net asset value. Bitcoin has gone down 72% in the last year, and GBTC records an 82% loss. Crypto Lists’ Noah explores further.
Thus, the spread shows the disparity in the Trust’s holding value and open market price for a share in the Trust. These lows show how the Grayscale problems directly impact BTC prices. The explorations come in with the circumstances. Grayscale is going through challenges such as their security concerns and the failure of FTX.
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Grayscale’s digital assets
Grayscale digital assets include laws, documents, and regulations prohibiting them from being borrowed, lent, or encumbered. There has been a pause in its new loan originations and redemptions.
Each digital asset product is set up as a “separate legal entity” and stored under Coinbase Custody Trust Company. Grayscale is accountable and shows the tokens held under Coinbase, which amount to 635,235 Bitcoin.
Grayscale announced that it would not share its proof of reserves with customers. Current security concerns indicate that Grayscale will not make on-chain wallet information and confirmation data publicly available via a cryptographic Proof-of-Reserve or any advanced cryptographic accounting procedure.
The Failure of FTX with Grayscale Bitcoin Trust
FTX collapse caught the crypto industry by surprise on how such a trusted exchange could go from hero to zero in just a week. The exchange’s woes have had a significant impact on several crypto projects.
Grayscale intended to reassure its investors and the market that the flagship product was financially impermeable. GBTC’s image has been having complications for a while as it trades at a discount to the BTC spot nearing the 50% mark.
Grayscale is having challenges as it tries to convert GBTC to an exchange-traded fund (ETF). FTX’s implosion and bankruptcy show the missing customer funds and have demonstrated the need to release proof-of-reserve audits. The failure to disclose the reserves is different from what the industry wants, but they claim to have kept the assets safe for years and still have a good reputation concerning their security.
The fund structure does not have investor-friendly features, and the fact that it is not a proper ETF, Grayscale deals will disappear on these Bitcoin prices. With these challenges, Grayscale tends to underperform on Bitcoin due to the lack of full-featured Bitcoin ETFs.
Business as usual?
Despite the concerns raised and wrangling in the crypto industry, Grayscale claims that it is doing well and ensures that all assets are safe and secure. Grayscale’s liquidation has a possible severe impact on the crypto market due to the connections it has to FTX. Its largest shareholder, DCG has a 4.1% stake while the second largest is BlockFi which filed for bankruptcy as it was directly exposed in significant measure to FTX. This continues to raise concerns in the crypto community.
The possibility of Bitcoin prices going lower is happening. Therefore, a possible Grayscale dissolution could pressure bitcoin prices and ruin their supply. Grayscale claims to not be in business with Genesis amid claims to continue the business. The discount while underlying trading bitcoin continues to widen and stresses the crypto markets.
Rejection of Grayscale’s trial to turn to an ETF
Recent events prompted Grayscale to restructure into an ETF. However, the SEC denied this move citing Grayscale’s vulnerability to fraud and manipulation. SEC cannot change it to an ETF as it has no insight into where Bitcoin originates from and wants to convert it to ETF to bring the share price in line with underlying value. There are suggestions of Grayscale suing the SEC over this rejection.
The price of Bitcoin fluctuates, and the performance shows the risks for the cryptocurrency. It has been ranked in the bottom 6% of stocks from last year concerning price performance. The fund stooped by close to 73% as the market adjusts to the challenges faced by the fund.
The Grayscale Bitcoin Trust Fund has a direct impact on the token’s price with evidence of its shortcomings coinciding with a slump in Bitcoin’s price.