Everything you wanted to know about Grayscale BTC Trust but were afraid to ask!

[DooMAD]

Cameron Winklevoss goes on with his power struggle with DCG. He’s now asking the board of directors asking to oust Barry Silbert.
(...)
He cites various accusations, without providing too much evidence.
I doubt action will follow. But the point of getting DCG out of the dirt it's flying over various exchanges nowadays.

I'm curious what Gemini are hoping to achieve with an out-of-court settlement.  It's not as though they don't have the funds for a lawsuit if their case is as strong as they claim.  Is it just that they want it resolved quickly?  Or do they think the deal will be more lucrative without lawyers involved?

[fillippone]

I'm curious what Gemini are hoping to achieve with an out-of-court settlement. 

Maybe they already obtained a result:



Well, if management start thinking Silbert leaving could narrow the discount, well I can see Barry staying at the helm too long.

[JayJuanGee]

Cameron Winklevoss goes on with his power struggle with DCG. He’s now asking the board of directors asking to oust Barry Silbert.
(...)
He cites various accusations, without providing too much evidence.
I doubt action will follow. But the point of getting DCG out of the dirt it's flying over various exchanges nowadays.

I'm curious what Gemini are hoping to achieve with an out-of-court settlement.  It's not as though they don't have the funds for a lawsuit if their case is as strong as they claim.  Is it just that they want it resolved quickly?  Or do they think the deal will be more lucrative without lawyers involved?

No one should want to trigger bankruptcy proceedings if they can get a better resolution prior to forcing that kind of a filing... Gemini and some of the other creditors likely have enough clout (meaning outstanding debt that is not being serviced) that they have standing to force a bancrupty proceeding.. but then the whole thing could end up taking years and years and years to resolve and surely would not work to their (Gemini's) favor either.

We all likely realize that Silbert and company is milking this uncomfortable situation.. and if they can delay any kind of forced resolution for a year or two, then Silbert and company would still be able to make profits the whole time that everyone else is suffering... and the matter ends up resolving itself.. meanwhile all the creditors are suffering and some of them are suffering more than others... and Silbert and company ends up suffering the least because of his ongoing stalling...  

So yeah.. Gemini and some others have that forced filing card that they can play.. and Silbert is seeming to ongoingly gamble that they won't play it.

I'm curious what Gemini are hoping to achieve with an out-of-court settlement.  

Maybe they already obtained a result:

Well, if management start thinking Silbert leaving could narrow the discount, well I can see Barry staying at the helm too long.

The market is starting to seem to show that at least it is perceiving that the situation is not as bad as previously thought.. whether the market is correct is not an easy call, either... unless we can point to some solid resolution that shows that something materially has changed... 

Read that market.

Is it right or not?

[franky1]

ok lets get to details
(my opinion based on the reading of the posts links of open letter revelations)

gemini(winkles) lent genesis(DCG) BTC(gemini customers)* valued to gemini at the time im guessing about an average of $30k each to a sum of about $900 mill
*call it 30,000btc rounded for easy math^^

if it went to court. and gemini(winkles) won
a. the amount to gemini would be in dollars(tender). not payment in kind(BTC)
b, the amount would be at value of btc of court specified date. not the value the gemini customer bought/lent their coins over the last couple years
c. genesis(dcg) would have a delay-able time period to pay/file bankruptcy of genesis to avoid paying

the reason they(gemini) want to mediate outside of court is to get 30,000 coins back. not to be left with a settlement of (30000 at $17.2k) current value dollars of $516m, which genesis can avoid paying soon.. or at all.. via many other legal strategies, such as filing bankruptcy/court payment plans/etc

^^
gemini dont reveal amount of coin.. by my estimates are based on dates and times of fiat numbers splashed about in media and twittosphere and court filings that its about 30k of coins. so for easy math lets call it that just to skip a few explainers of this example and i will grey out the amount of coin as its not practical/specific to the example so no knitpicking, its just an example

[franky1]

https://dcgupdate.com/
tl:dr; hunkering down laying off staff, hoping to weather the storm

DCG Shareholder Letter from
Barry Silbert, Founder & CEO
Published 2:00pm EST, Tuesday January 10, 2022

Dear Shareholders,

Happy New Year.  I’ve been reflecting quite a bit recently about the past year, the state of the industry, and where things go from here.

First, I’m incredibly proud of the role that DCG and I have played as pioneers and builders over the past 10 years.  Since our founding, we have invested in more than 200 companies that have developed and shaped the industry, and we have helped build the first publicly-quoted BTC fund, the largest asset manager in the space, the most influential crypto media platform, the #1 bitcoin mining pool in the world, the leading crypto prime broker, and a dominant crypto wallet/exchange in the emerging markets.  DCG has also backed a tremendous group of emerging fund managers, crypto protocols, and cutting-edge blockchain projects.

I have fond memories of the early days of our industry, working hard to help educate and fighting in the trenches with fellow entrepreneurs and investors to gain legitimacy.  Speaking at conferences to rooms with three people, getting snickered at on CNBC, and being dismissed by most legitimate investors was, I found, empowering and motivating.

In contrast, this past year has been the most difficult of my life – both personally and professionally.  Bad actors and repeated blow-ups have wreaked havoc on our industry, with ripple effects extending far and wide.  Although DCG, our subsidiaries, and many of our portfolio companies are not immune to the effects of the present turmoil, it has been challenging to have my integrity and good intentions questioned after spending a decade pouring everything into this company and the space with an unrelenting focus on doing things the right way.  

I shared this sentiment in my previous shareholder letter this past November: DCG is committed to remaining at the forefront as we strive to build a better financial system.  As this new year unfolds, we are hunkering down with our “lean and mean” mindset, and we are making meaningful changes to position the firm for long-term success.  We’ve been aggressively cutting costs over the last few months in reaction to the current state of the market, which has included cutting operating expenses, and regrettably, reducing the DCG workforce.  We also made the difficult decision to wind down HQ, the wealth management subsidiary that DCG incubated in 2020.  While we still believe in the HQ concept and its outstanding leadership team, the current downturn is not conducive for the near-term sustainability of that business.

Looking ahead to 2023 and beyond, the industry has a lot of hard work to do to re-establish its credibility and reputation, which have been all but destroyed by a wave of unprecedented fraud and criminal behavior unlike anything I’ve seen in my career.  This is going to be a challenging year for all of us, but I remain optimistic.  I hope this letter and the accompanying Q&A that explains other developments and addresses some of the speculation about DCG – some of which is reasonable and some that is completely baseless and false – help to clarify our position.

To my peers in the trenches, now is a time to collaborate, cheer each other’s successes, and collectively take our industry to the next level.  Let’s all grow together, treat others with respect, and get back to having fun and making a dent in the universe.  I can assure you that DCG is certainly committed to doing so.  I also have no doubt that DCG will emerge from this year a stronger company than ever before.

notable bits
Q&A

7.
DCG currently owes Genesis Capital (i) $447.5M* in USD and (ii) 4,550 BTC (~$78M), which matures in May 2023.

DCG borrowed $500M in USD between January and May 2022 at interest rates of 10%-12%.


DCG’s investment entity borrowed BTC during 2021 and 2022 at a weighted average interest rate of 3.85%, which include amounts previously borrowed that have since been repaid to Genesis Capital, leaving the current 4,550 BTC loan balance.  

To put these loans to DCG into context, at the time they were issued in early 2022, DCG’s equity was valued at $10.0B, DCG’s trailing twelve-month EBITDA was in excess of $1.0B, and Genesis Capital’s aggregate loan book size ranged from $12.0-$15.0B.  BTC prices ranged from $30.0K-$47.0K during this period.

DCG has not borrowed from Genesis Capital since May 2022, has never missed an interest payment, and is current on all loans outstanding.

9.
9. How did DCG’s investment entity use the BTC borrowed from Genesis Capital?
DCG’s investment entity used the BTC borrowed from Genesis Capital to hedge GBTC long positions to remain market neutral on such positions.  DCG’s open market purchases of GBTC were made when GBTC traded at a meaningful discount to NAV and, like all other investments, these decisions were based on an assessment of the likely returns weighted against the risks.  Our purchases of GBTC on the open market have been in compliance with Rule 10b-18 under the Securities Exchange Act and transparently disclosed in filings and press releases.

10.
10. What is DCG’s relationship with FTX?
DCG made a small equity investment of $250,000 in FTX’s Series B in July 2021.  This was part of our ongoing strategy to invest in exchanges all over the world – we’ve invested in close to two dozen.  DCG held a trading account with FTX with less than 1% of all our trading volume transacted on that platform.

[bbc.reporter]

@franky1. According to some people in social media, Barry Silbert was the first person to have loaned money to Sam using only FTT as the collateral. I reckon after this act, it might have become an acceptable form of collateral for other future creditors of Sam also.

In any case, after everything we have witnessed with Barry, he should have bought only Bitcoin and Ethereum during 2016 and held them instead of pumping Ethereum Classic and those other altcoins. He also caused his own problem by creating funds that cannot be redeemed and other schemes for all of those altcoins.

[franky1]

In any case, after everything we have witnessed with Barry, he should have bought only Bitcoin and Ethereum during 2016 and held them instead of pumping Ethereum Classic and those other altcoins. He also caused his own problem by creating funds that cannot be redeemed and other schemes for all of those altcoins.

the latest "promissory note" is a prime example of problems

a normal business makes a real product/asset and sells it for real value/cash

however when businesses start purchasing/swapping debt. (like the the behind the scenes deals of the institutional bankers did with the subprime mortgage "derivatives") their 'product' is not a product. its just debt
when when debts dont get paid back the whole things unravel

DCG didnt give genesis money to re balance its books. genesis didnt write off debts it had. nor claw back funds from those that owe genesis.. genesis simply gave DCG the debt note. to take it off genesis's balance sheet.
DCG took it on as it shows a minus balance to then be at paper loss for tax purposes. yet by them now just shuffling debt notes and ious and loans with no value actually switching hands no actual product or cash moving..

its not good

[Sayeds56]

Cameron Winklevoss goes on with his power struggle with DCG. He’s now asking the board of directors asking to oust Barry Silbert.
(...)
He cites various accusations, without providing too much evidence.
I doubt action will follow. But the point of getting DCG out of the dirt it's flying over various exchanges nowadays.

I'm curious what Gemini are hoping to achieve with an out-of-court settlement.  It's not as though they don't have the funds for a lawsuit if their case is as strong as they claim.  Is it just that they want it resolved quickly?  Or do they think the deal will be more lucrative without lawyers involved?

No one should want to trigger bankruptcy proceedings if they can get a better resolution prior to forcing that kind of a filing... Gemini and some of the other creditors likely have enough clout (meaning outstanding debt that is not being serviced) that they have standing to force a bancrupty proceeding.. but then the whole thing could end up taking years and years and years to resolve and surely would not work to their (Gemini's) favor either.

We all likely realize that Silbert and company is milking this uncomfortable situation.. and if they can delay any kind of forced resolution for a year or two, then Silbert and company would still be able to make profits the whole time that everyone else is suffering... and the matter ends up resolving itself.. meanwhile all the creditors are suffering and some of them are suffering more than others... and Silbert and company ends up suffering the least because of his ongoing stalling...  

So yeah.. Gemini and some others have that forced filing card that they can play.. and Silbert is seeming to ongoingly gamble that they won't play it.

I'm curious what Gemini are hoping to achieve with an out-of-court settlement.  

Maybe they already obtained a result:

Well, if management start thinking Silbert leaving could narrow the discount, well I can see Barry staying at the helm too long.

The market is starting to seem to show that at least it is perceiving that the situation is not as bad as previously thought.. whether the market is correct is not an easy call, either... unless we can point to some solid resolution that shows that something materially has changed...  

Read that market.

Is it right or not?

Agree with your opinion that , situation is not as bad as perceived by many analysts, and market is showing clear signs of beginning of recovery which is also evident from increase in marketcap. Many investors are currently waiting for release of CPI data & FED decision of interest rate increase(before taking entry) scheduled on  January 12th, which will determine the future direction of market.

[JayJuanGee]

[edited out]

Agree with your opinion that , situation is not as bad as perceived by many analysts, and market is showing clear signs of beginning of recovery which is also evident from increase in marketcap. Many investors are currently waiting for release of CPI data & FED decision of interest rate increase(before taking entry) scheduled on  January 12th, which will determine the future direction of market.

Even that Silbert letter that Franky showed in his above post shows that Silbert may well not be blinking and may not even need to blink if he is not in default in any of the payments, then there might not be any standing that anyone (including Gemini or the Winklevii) has to force a bankruptcy proceeding.. and perhaps Silbert has to miss a payment first?

That is a pretty damned BIG set of payments that seems to be due in May 2023... but there still might be ways that payments are able to be made, and so even if Silbert and DCG have been receiving a lot of negative public pressure and even tanking of the market price of the shares (which they seemed to have had taken advantage in buying those dips, too), they still may well have the upper hand in this whole seeming squeezing of a mess..

We really cannot know for sure that they are not able to pay unless or until they actually miss a payment or if there may be some ability for larger amounts of any of their loans could be called in at some kind of an earlier date.. and of course, there could be some votes of shareholders that could force DCG and/or Silbert into a direction that they do not want to go, but it might not be legally possible to call in any of those loans, unless Silbert/DCG actually misses a payment or is otherwise in default.. .. so if they (Silbert and/or DCG) are actually in materially significant default somewhere, then that would be an interesting fact to know.

PS. I think that much of our recent discussion regarding Silbert/DCG's hand being forced by various civil proceedings and/or inabilities to pay or to service debt... Yet, there may well be various unknowns involving some of the recent criminal angles that have been pursued in recent times - and if there are financial crimes, sometimes it can take a decently long time for those to be figured out - but we have some folks who had been recently arrested that could potentially want to squeal to reveal some of the behind the scenes shenanigans to be more than just inabilities to match up order books .. like they want to describe as liquidity crunches.. . but if some criminal angles end up coming to light, that could throw some monkey wrenches in Silbert/DCG's so far successful delay tactics.. I am not saying that I know anything beyond the mere complications of various FTX arrests and the likelihood that several more high level financial crime folks should be arrested who had been playing some of the products (surely maybe just on the market and perhaps with no complicity from Silbert/DCG - even though they admit to be buying their own shares, too.. so there could be manipulation involved including possible criminal level manipulation.. which might be a stretch to proclaim without evidence) but are still on the loose.

Edited about 8 hours after original post to add PS  

[franky1]

a company with any debt is bad.. it shows they are not profitable/self sustainable

a company that (based on 10.5bill assets for demo) is only able to take a 2% cut ($210m) a year which it splits with its "mother" DCG
where DCG has debts of more then a billion.. means "mother" is in trouble (less yearly income compared to outgoings)

DCG EBITDA is less than $1b
after taxes and costs its alot lot less then that.

DCG should not be doing loans/debt deals of more yearly payment demand than its post-tax income

[bbc.reporter]

a company with any debt is bad.. it shows they are not profitable/self sustainable

I very much disagree. It is normal for companies to have debts as long as the company has the cashflow to pay for the monthly interest payments and have the collateral to back up the loan. What is not good is if the company, very much similar to DCG, has payables that they are not willing to honor and the lender has began accusing the company of public lies, private lies and bad accounting practices.

According to the Financial Times, Genesis Global owes $3billion to creditors.



Crypto broker Genesis owes creditors more than $3bn, prompting its owner Digital Currency Group to explore selling assets in its large venture portfolio to raise money, according to people familiar with the matter.

Source https://www.ft.com/content/eb22bfab-ef05-48ce-83de-ebb904a35dca



Everyone can call me an antagonizer, however, this pump on bitcoin might not keep going. The dump will occur unless Barry's problem is settled.

[franky1]

a company with any debt is bad.. it shows they are not profitable/self sustainable

I very much disagree. It is normal for companies to have debts as long as the company has the cashflow to pay for the monthly interest payments and have the collateral to back up the loan. What is not good is if the company, very much similar to DCG, has payables that they are not willing to honor and the lender has began accusing the company of public lies, private lies and bad accounting practices.

According to the Financial Times, Genesis Global owes $3billion to creditors.

Crypto broker Genesis owes creditors more than $3bn, prompting its owner Digital Currency Group to explore selling assets in its large venture portfolio to raise money, according to people familiar with the matter.

Source https://www.ft.com/content/eb22bfab-ef05-48ce-83de-ebb904a35dca

Everyone can call me an antagonizer, however, this pump on bitcoin might not keep going. The dump will occur unless Barry's problem is settled.

there are 3 main types of outstanding loan statuses
loans payable non-current(more then a year)
loans payable current(within a year)
loans in default(overdue/unpaid)

i consider the third as DEBT

loans can just sit on balance sheets as liabilities and be swapped around and stuff
but true debt, means you are being chased because your not sticking to arrangements or not paying obligations

its like mortgages. people dont see it as debt. they see it as an agreement with the bank.. its not until the debt collectors come knocking that they start to sweat

[Daltonik]

a company with any debt is bad.. it shows they are not profitable/self sustainable

I very much disagree. It is normal for companies to have debts as long as the company has the cashflow to pay for the monthly interest payments and have the collateral to back up the loan. What is not good is if the company, very much similar to DCG, has payables that they are not willing to honor and the lender has began accusing the company of public lies, private lies and bad accounting practices.

According to the Financial Times, Genesis Global owes $3billion to creditors.



Crypto broker Genesis owes creditors more than $3bn, prompting its owner Digital Currency Group to explore selling assets in its large venture portfolio to raise money, according to people familiar with the matter.

Source https://www.ft.com/content/eb22bfab-ef05-48ce-83de-ebb904a35dca



Everyone can call me an antagonizer, however, this pump on bitcoin might not keep going. The dump will occur unless Barry's problem is settled.

I had to use the reproduction of the article from the archive since FT is distributed by subscription https://archive.ph/R8Dd1

Of course, the situation with Genesis debts is largely complicated by the SEC's lawsuit against Gemini and Genesis, but perhaps Justin Sun's statements about her willingness to spend up to $1 billion to purchase DCG assets will somehow defuse the tension.

[Wapfika]

I didn’t know if this question is already asked here. Just refer me to the answer if there is. Where exactly did Grayscale purchased there Bitcoins and are they still accumulating up to this point? Does there Bitcoin address is available for there investors to monitor company holdings?

Lastly in case that Grayscale will decide to already sold there holdings. Will they do an announcement to the public right after the sell off commence? And will they use exchange?

[franky1]

I didn’t know if this question is already asked here. Just refer me to the answer if there is.

[1]Where exactly did Grayscale purchased there Bitcoins
[2]and are they still accumulating up to this point?
[3]Does there Bitcoin address is available for there investors to monitor company holdings?

[4]Lastly in case that Grayscale will decide to already sold there holdings.
[5]Will they do an announcement to the public right after the sell off commence?
[6]And will they use exchange?

1. OTC(off market over the counter), mining, company acquisitions(collateral swaps) mainly
2. small amounts. most of it was bought/acquired over many years
3. its spread over many addresses which coinbase has custody of the wallet
    someone did try to track them. heres his tweet thread https://twitter.com/ErgoBTC/status/1594308382084812801
4. nope, they will announce a share buy back first before touching the coin
5. they have to buy back the shares first. to unlock the reciprocal amount of btc the share represents
6. they would use OTC

[odolvlobo]

I didn’t know if this question is already asked here. Just refer me to the answer if there is. Where exactly did Grayscale purchased there Bitcoins and are they still accumulating up to this point? Does there Bitcoin address is available for there investors to monitor company holdings?
Lastly in case that Grayscale will decide to already sold there holdings. Will they do an announcement to the public right after the sell off commence? And will they use exchange?

These facts have been repeated many time but it seems that many people still are not aware that Grayscale does not own the BTC in GBTC, nor can they sell the bitcoins in GBTC.

The Grayscale Bitcoin Trust is a trust. It is a separate entity that it managed by Grayscale, and it pays Grayscale a management fee of 2% per year. The bitcoins in the trust were deposited in exchange for shares in the trust. Grayscale does not own the bitcoins in the trust. The trust owns the bitcoins. Grayscale does not own the trust. The shareholders own the trust. Not accurate.

The bitcoins in the trust were deposited in exchange for shares in the trust. While Grayscale deposited the initial bitcoins, they certainly did not deposit all of the bitcoins. However, Grayscale did have convenience option in which they would purchase the bitcoins to be deposited for the customer.

The structure of the trust currently does not allow the bitcoins to be sold, lent, or used as collateral. Grayscale cannot sell the bitcoins in the trust.

[franky1]

to clarify a bit further

legally no one owns the trust. as thats the point of one.. it acts as self entity with rules. where the rules define who manage it
there are trustees who are responsible (and re-sponser-able) for the management of the trust
and they designate what goes in or what comes out based on the rules and contract of the trust (who the beneficiaries are and when a payout can be made)

as a trustee(sponsor as grayscale call it) they have 'rules' to follow and as trustee/sponsors.
the trustee aka sponsor is currently grayscale. and separately grayscale have a "product" that they sell as shares (separate from trust ownership) that represent X amount of value inside the trust. as a measuring stick of responsibility. but not ownership of said value
(its 'advisory shares' not stock ownership stake(advisory shares are not allowed to be 'stock' yet (research the whole SEC drama))

they sell that responsibility(advisory) in a form of shares. meaning people can 'vote' using their shares to change the contract or change the sponsor managing the trust but at this point not own the btc inside the trust.


grayscale do not want to do or propose for a vote of a redemption program(shares for coin). they want to offer a 'buyback' repurchase of share program(fiat for shares)
meaning dollars to buy back shares.. which means grayscale as sponsors can then untether the btc in the trust as no shares associate to it. and thus either remeasure the remaining share against the trust collateral to raise the shares to be at less discount. or just yoink the btc out to use for other grayscale business.. we may find out at 23rd when grayscale file their next SEC deadline response

[fillippone]

to clarify a bit further

grayscale do not want to do or propose for a vote of a redemption program(shares for coin). they want to offer a 'buyback' repurchase of share program(fiat for shares)
meaning dollars to buy back shares.. which means grayscale as sponsors can then untether the btc in the trust as no shares associate to it. and thus either remeasure the remaining share against the trust collateral to raise the shares to be at less discount. or just yoink the btc out to use for other grayscale business.. we may find out at 23rd when grayscale file their next SEC deadline response

I guess the “sale” of the Bitcoin in the trust will be necessary to fund the repurchase. They are using those funds to repurchase the shares, possibly using some kind of temporary bridge loan.

[franky1]

to clarify a bit further

grayscale do not want to do or propose for a vote of a redemption program(shares for coin). they want to offer a 'buyback' repurchase of share program(fiat for shares)
meaning dollars to buy back shares.. which means grayscale as sponsors can then untether the btc in the trust as no shares associate to it. and thus either remeasure the remaining share against the trust collateral to raise the shares to be at less discount. or just yoink the btc out to use for other grayscale business.. we may find out at 23rd when grayscale file their next SEC deadline response

I guess the “sale” of the Bitcoin in the trust will be necessary to fund the repurchase. They are using those funds to repurchase the shares, possibly using some kind of temporary bridge loan.

it doesnt work like that. as thats backwards.

ever since post #649 you have been obsessively hoping that its some kind of ability for shareholders to win/get/receive bitcoin in exchange for shares... and multiple times including quotes i have said and shown that is not the case

heres the two options
(neither involve share holders(customer) getting BTC)

using FIAT... greyscale buys back the shares AT SHARE PRICE.. end of story for the share holder.. bye bye they are gone with their fiat..

ex shareholders walk away with fiat at the SHARE rate.
20% of share holders escape

those 20% shares are destroyed.

this legally THEN untethers nearly 20% of BTC of the trust(for grayscale/dcg to do with as they please as they fronted the fiat).

a. where they can leave the coin in and rebalance the remaining shares to be less "discount"
 
b. they take out the BTC to use internally for DCG issues.. becasue its not part of the "share product"

again forget this proposal being a "share holder btc redemption" its not.
its a share buyback.. not a give btc to shareholder thing

[fillippone]

its a share buyback not a give btc to shareholder thing

I have read differently. So I guess until this proposal isn’t launched with a proper offer and term sheet, we will continue discuss about this (or we better stop doing so until we know more with certainty!)