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8th January 2023 > > Huobi and GBTC.

Updated: Jan 12, 2023

tl;dr

Two possible news items to keep an eye on. The potential downside is underestimated for one, and overestimated for the other, by the mostly ill-informed popular press.


Market Snap







Market Wrap

The last time we had a handle different from 16 was on the 16th December 2022. Frankly this is getting ridiculous.


Let’s look at BONK instead. Down about 50% from when we last visited its remarkable price action of thousands of percent gain since Christmas day, this is a salutary reminder that trying to get in on the price action of small alts immediately AFTER they have listed on a centralised cryptocurrency exchange is a mug’s game.


Curious Cryptos’ Commentary — Huobi

Huobi – the fourth largest centralised cryptocurrency exchange based in Singapore – was recently bought by Justin Sun, founder of the Tron foundation, and an early crypto-made billionaire.


In the last week Huobi has seen nearly $90mm of funds withdrawn, of which $60mm occurred in the last twenty-four hours.


This is in response to a report by Reuters – that has since been denied – that Huobi is laying off 40% of its staff.


After the fraudulent FTX fiasco of 2022 it comes as no surprise that those who have deposited the greater amount of their crypto stash on a centralised cryptocurrency exchange are somewhat skittish.


Intriguingly these withdrawals have been met with a $100mm deposit of USDC (USD Circle) and USDT (USD Tether), two of the well-established stablecoins, taken from Binance by … Justin Tron.


This revelation raises two key questions for me.


The first is obvious – if depositors’ assets on Huobi are backed 100% by funds held in a segregated account, why did Tron feel the need to top up the balances at Huobi?


And the second one is more concerning. Why would Tron hold $100mm at a rival exchange and not either in self-custody, or indeed his own exchange?


Let me repeat again. You should only hold 5-10% of your crypto assets at a centralised cryptocurrency exchange, and preferably only Coinbase or Binance.


The CC Treasury has a small holding of ZED (a gaming coin) at Huobi which is being moved to self-custody as soon as today’s CCC is published.


Why delay you ask? It’s simple. Our readers are more important to us than any amount of crypto could ever be.


If Huobi is insolvent and about to fail, the hit to the crypto market’s confidence will be more severe than currently recognised.


Curious Cryptos’ Commentary — GBTC (Grayscale Bitcoin Trust)

GBTC is now trading at around a 45% discount to NAV (Net Asset Value) whilst the ETH equivalent is trading at a 59% discount.


For long-term holders these discounts give an extraordinary opportunity in my personal view, but market prices clearly indicate that once again I find myself in the minority with a contrarian view. Unfortunately for us Brits, we are not allowed to gain exposure to GBTC, another shining example of the deleterious effects of poorly designed over-regulation whose objective is to protect the regulator to the detriment of the investor.


GBTC has applied to turn the trust into a physical ETF (exchange traded fund) that would immediately decimate the discount, but crypto-hater Gary Gensler, chair of the SEC (Securities and Exchange Commission) turned it down, to no surprise to anyone.


A new idea has been put forward, to initiate a Reg M (no, me neither) which would allow owners of GBTC to exchange the shares for the physical asset.


It is being claimed that this would lead to a huge oversupply of the physical asset into the spot market – 3.3% of BTC and 2.5% of ETH are held within the relevant trusts.


What utter tosh.


Reg M will simply take out the discount immediately before anyone could arbitrage the trade in any meaningful volume.


I believe that Reg M will actually be very positive for the price of BTC and ETH as everyone realises – too late of course to take advantage – that the discounts were an opportunity not a threat.


As I said, I am in the minority on this one. I don’t do it on purpose, but it seems to me that in matters financial the prevailing market view is often wrong. Identify that mispricing, and oversized returns are your reward.

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