21st November 2022 > > Grayscale.

tl;dr

I feel let-down by Grayscale, and I am a touch worried.

Market Snap

Market Wrap

A rough night for cryptos with BTC briefly losing touch with the 16-handle, probably due to the ongoing speculation about DCG (Digital Capital Group) the parent of Genesis Global Trading and Genesis Global Capital (see CCC 17th November 2022). If you recall, Global Capital has shut its doors, and there is justifiable fear that Global Trading might follow. DCG has another important business operation in its stable – Grayscale. See below for more details.

Curious Cryptos’ Commentary – I am not happy about this

I have long been a fan of Grayscale.

They are an early adopter of cryptos, working hard to bring investment opportunities in cryptos to both retail and institutional clients with no execution or custodial risk.

They have provided this remarkable service for a fat fee of 2% per annum, but to be fair to Grayscale they continually push the SEC to turn their trust into an ETF (exchange traded fund) which would open the floodgates to competitors. Competition is a far more effective way of reducing costs than any government mandated edict, be it rent controls, purported reductions in UK government spending after 2025, or any other form of coercion one can mention.

Grayscale is not trying to massacre its own margins simply out of goodwill.

The BTC trust trades at a 50% or so discount to its assets, which offers opportunities for those who have the regulatory approval to get involved but that cohort does not include you and me. More pertinently, such a large discount prevents Grayscale from issuing more shares in its own trust and I am in no doubt that senior management would prefer to grow their business with lower headline returns but greater upside rather than sitting around scratching their bottoms for that 2% on a static pile of business.

…

But now I am a little worried.

We have seen since the FTX fraudulent fiasco a push for “proof of reserves” for centralised cryptocurrency exchanges.

It is not surprising that the same request has been made of Grayscale.

And their response so far has been found wanting:

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

I should point out here that Coinbase is the custodian for Grayscale.

…

Ho hum.

This statement makes no sense to me.

In the cryptographic world of public and private keys (see our free online training course at https://www.curiouscryptos.com/cccourses for more details) there is zero reason to wish not to disclose one’s public keys.

Grayscale have addressed this concern, in an utterly unconvincing manner:

“We know the preceding point in particular will be a disappointment to some, but panic sparked by others is not a good enough reason to circumvent complex security arrangements that have kept our investors’ assets safe for years.”

Maybe that 50% discount is telling us something bad. I do hope not.

Curious Cryptos’ Commentary – Crypto staking part 2

I know you are all desperately keen to set off on your own personal staking journey, but I must tell you that part II – because of the urgency of reporting the information above – has been delayed until tomorrow.

It is what it is, get over it.