World’s Largest Bitcoin Trust Grayscale In Meltdown

The collapse of FTX has put Grayscale, the world’s largest Bitcoin trust, in meltdown, with it refusing to disclose its proof of reserves to clients.

World’s Largest Bitcoin Trust Grayscale In Meltdown 1

The asset management of the largest bitcoin fund in the world, Grayscale, announced in a statement that it will not disclose its proof of reserves to clients.

“Due to security concerns, we do not make such on-chain wallet information and confirmation data publicly available through a cryptographic Proof-of-Reserve, or other advanced cryptographic accounting procedure,” said a statement Friday.

In an effort to assuage investor concerns regarding the security of their funds in the wake of FTX’s collapse and the bankruptcy procedures that revealed that customer funds were missing, several cryptocurrency exchanges have jumped to produce proof-of-reserve audits. Others, like Binance, claim they will do so shortly.

Grayscale acknowledged in a tweet that withholding a proof of reserves will disappoint some, but said that this was insufficient justification to forego the intricate security measures that have kept the money of its clients “safe for years.”

The Grayscale Bitcoin Trust, denoted by the ticker GBTC, is the company’s main investment option. GBTC is selling at a 45% discount to the price of its underlying asset, even though the price of bitcoin is currently at a multiyear low of about $16,000.

As of last Friday, GBTC has lost 82% of its value over the previous 12 months, compared to 72% for bitcoin. The spread shows a considerable discrepancy between the share price on the open market and the value of the trust’s only holding.

Each of Grayscale’s digital asset products is set up as a “separate legal entity,” according to the company’s statement from Friday. Grayscale also emphasised that these digital asset products are “stored under the custody of Coinbase Custody Trust Company.”

The company cited a letter that Coinbase CFO Alesia Haas wrote on November 18 and which provides a breakdown of the tokens held in Coinbase Custody. Approximately 635,235 bitcoin, or $10.2 billion, are currently held by Coinbase on behalf of Grayscale.

The company stated in a tweet that it is against the law for the underlying digital assets to be lent, borrowed, or otherwise encumbered by the “laws, regulations, and documents that define Grayscale’s digital asset products.”

The parent firm of Grayscale, Genesis, and CoinDesk is the Digital Currency Group, which is owned by Barry Silbert. The lending division of the cryptocurrency investment bank Genesis Global Trading halted the origination and redemption of new loans last week.

The bank’s lending division, known as Genesis Global Capital, caters to institutional clients. According to the firm website, it had active loans totaling more than $2.8 billion at the end of the third quarter.

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