Delving into the digital money management business and breaking down the Genesis/DCG/Greyscale soap opera. - by CryptoHayes cryptohayes grayscale
, which lays out the little games that Mr. Shillbert was likely playing with DCG, Greyscale, and Genesis.Grow the AUM of GBTC and clip 2% management fees on the trapped capital.Genesis and Gemini entered into a partnership whereby Gemini would lend its customer’s capital to Genesis for a fee. This was called the Gemini Earn product. As a Gemini user, you could pledge your BTC or USD and receive interest from Gemini.
To put this in layman's terms: when you take out a loan of this type, you give the lender some amount of assets in return so that if you can’t repay the loan, they can at least repossess the assets you pledged – also known as your collateral – and recoup some of their losses. If the asset you pledge falls in value, you need to provide more of it in order to maintain the agreed upon value of your collateral.
As you can see in the above screenshot of GBTC holdings, DCG is now the largest holder of GBTC. The DataFinnovation post lays out a timeline on how DCG stepped in as the buyer of last resort. The Terra collapse affected many of Genesis’ borrowers such that any other collateral provided for their BTC and USD loans was also in the dumpster. Remember that Bitcoin, Ether, and the whole shitcoin complex declined 50% to 90% in the weeks after the Terra ecosystem collapsed.
Mr. Shillbert told us that DCG assumed 3AC loans from Genesis’ loan book – so the only question is, what did DCG pay for them? In a purely accounting sense, if DCG pays par, then Genesis is solvent. That’s good … right? However, how did DCG pay for the asset? Mr. Shillbert told us that Genesis lent DCG the money with which to purchase assets on Genesis’ balance sheet at, I believe, the most favourable valuation for Genesis . This is a bit of a left hand, right hand fugazi transaction.
Finally, cold hard maths and excessive leverage forced socially conditioned muppets to snap out of it, and become discerning investors once more. There are so many questions about what is actually going on inside the G-Unit. But I know one thing, reading what I have read about the situation, and using my noggin, DCG and Genesis are untouchables. And obviously my sentiments are shared otherwise Genesis wouldn’t be teetering on the verge of bankruptcy.
Open a short Bitcoin / USD perpetual swap or short Bitcoin / USD futures position to hedge the Bitcoin / USD exposure.If GBTC swings to a premium, sell GBTC, buy USD. Then close the short derivatives position. Unfortunately, there is not much liquidity in futures contracts with maturities longer than six months. That means that derivatives funding cost cannot be knowable a priori. If it takes a long time for the GBTC discount to swing to a premium, or for GBTC to be redeemed at par, then we are subject to the price of rolling our futures contracts.
I am happy to sit in US Treasuries with my spare fiat. That is because the Treasury market is the most liquid in the world. Should there be a serious distressed crypto asset that is puked out of one of these bankruptcies, I want to stand ready with dry powder. The GBTC trade will be liquid right now as volatility in its price and discount increases on the way down.
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