DCG Sells off Tokens Crazily, Is Grayscale Crash Coming Soon?

TL;DR

- The tokens such as FIL, ZEN, ETC, NEAR were sold off on a large scale, and the selling pressure may come from DCG.

- Genesis has been trying to raise funds in the past few days, but so far, it has not been able to do so.

- Genesis's bankruptcy triggered a loan of more than $1.5 billion, which may trigger the liquidation of token assets under Grayscale management.

- Once DCG goes bankrupt, it is likely that Grayscale assets will be liquidated, which will have an incalculable impact on the market.


Introduction

The aftershock of FTX has already impacted DCG. The Dutch Crypto Exchange Bitvavo yesterday issued a statement stating that it was unable to access €280 million of assets stored in DCG. Today, there has been a large-scale selling of tokens including FIL, ZEN, ETC and NEAR, which is analyzed as a result of the insolvency of DCG.


DCG Sells off Tokens Crazily

On December 17, Bitvavo, a Dutch cryptocurrency exchange, stated that it was unable to access €280 million of assets stored in DCG. Bitvavo stated that DCG was "encountering a liquidity crisis", so it "suspended repayment". Bitvavo also stated that the platform has been "providing customers with off-chain staking services" through DCG, but the freezing of funds will not impact the platform's policy operations, the service will not be interrupted, and customers can continue to withdraw money and other operations.

It is reported that Bitvavo currently has a total of €1.6 billion of digital assets, of which €280 million are stored in DCG.

Immediately, Will Clemente, founder of Reflexivity Research, an cryptanalysis institution, tweeted that several cryptocurrencies (FIL, ZEN, ETC, NEAR, etc.) related to DCG (the parent company of Grayscale) began to be sold off on a large scale last night, and the selling pressure may come from DCG.

In this regard, Adam Cochran, a partner of CHEV, also stated that DCG seemed to be liquidating some assets to reduce the liquidity crisis from the decline and trading volume of some Altcoins.

By the time of writing, FIL had plummeted 21.5% to $3.06, ZEN had fallen 6.03%, and currently it is $9.05, ETC had dropped 6.62% to $16.16, and NEAR had dropped 7.74% to $1.39.


Gensis Lurches from One Crisis to the Next

Influenced by the FTX crash, the liquidity problem of Genesis has been unresolved. Just this week, Ryan Selkis, the founder of the crypto research institution Messari, tweeted that he was worried: DCG and Genesis canceled more than $10 billion of loan contracts in Q2 and Q3. Considering that Alameda and Genesis are the world's largest two crypto borrowers, they may have more complex debt disputes.

Genesis has been trying to raise funds in the past few days, but so far, it has not been able to do so.

Genesis also warned potential investors that if the financing fails, the company may need to apply for bankruptcy protection. Genesis is the liquidity provider of GBTC. If it applies for bankruptcy, it will have a direct impact on GBTC.

In the past, it was reported that DCG borrowed money from Genesis to buy GBTCs, and whether these GBTCs are still in DCG's hands is still questionable. In addition, considering that the negative premium rate (discount rate) of GBTC has reached a new historical low of 47% recently, even if it can be sold for cash to repay, it will face significant losses, which casts a shadow on the collapse crisis of DCG and Gensis.

On December 15, Twitter user Andrew tweeted that he had communicated with Genesis creditors. Genesis creditors had more than $2 billion in debt. Genesis's bankruptcy may trigger more than $1.5 billion of redeemable loans from DCG, and DCG's bankruptcy will also lead to the liquidation of huge amounts of GBTC and other token assets.


Will Grayscale Collapse?

It is reported that the current Grayscale holdings include 650,000 BTCs (worth more than $10 billion) and 3.04 million ETHs (worth more than $3.6 billion) and other token assets. Among them, GBTC is the core business of Grayscale, and the asset value accounts for more than 70% of the total value of Grayscale funds. If Grayscale storms occur, the impact may be far greater than FTX events.

GBTC is a derivative crypto financial instrument, also known as Grayscale Bitcoin fund. The stock price of the fund will track the price of Bitcoin. Its operation is somewhat similar to ETF. Investors can hold Bitcoin indirectly by holding their shares. Because of convenient transactions and simple storage, GBTC has always been one of the most important holders of Bitcoin before the official Bitcoin ETF.

According to some analysts, once the parent company DCG of Grayscale goes bankrupt, it is likely to carry out strong liquidation with the staked assets of Grayscale, and the impact on the market will be incalculable. If Bitcoin is staked by Grayscale, it means that 650,000 Bitcoin will become the fuel of the Air Force. It can be imagined that this may be the "end of the world of crypto market".

As for the risk of Grayscale crash, Bernstein Research, a financial institution, believes that DCG would rather retain Grayscale than Genesis's business even under the most unfavorable circumstances. Because Grayscale is DCG's "flagship business and money spinner", it generates about $300 million of expense revenue every year.

According to the relevant data, 80,000 Bitcoins was liquidated due to the Terra crash, and the BTC price has plummeted from $40,000 to $20,000 along the way. However, GBTC currently holds about 650,000 BTCs. Once these BTCs are liquidated, the impact is unpredictable.


Conclusion

The year 2022 will soon end, DCG's FUD will continue, and Gate.io will keep an eye on the event updates.

Barry Silbert, the founder of DCG, once stated that he hoped to build DCG into a Berkshire Hathaway company in the cryptocurrency field. We hope that DCG and Grayscale can survive this crisis. We hope that the crypto world is getting better, not worse.

The cold winter will eventually pass, and the crypto industry will also clear up the haze and usher in the spring. Let's face the crypto wave and the arrival of wealth opportunities with a more positive and optimistic attitude.


Disclaimer:
Author: Gate.io Researcher Byron B. Translator: Joy Z.
* This article represents only the views of the observers and does not constitute any investment suggestions.
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