The Community Traces 317K BTC As It Attempts To Identity Grayscale Reserves

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The community takes things into its hands as Grayscale refuses to provide proof of Reserve.

@ErgoBTC, AKA Ergo, a blockchain researcher with OXT Research, disclosed findings from a community-led effort to trace Grayscale’s Bitcoin Trust (GBTC) reserves in a Twitter thread yesterday. 

Grayscale GBTC Trust, the largest legal holder of BTC, refuses to provide any Proof of Reserve.

To begin a community lead effort at transparency for the GBTC holdings, we have taken steps to ID likely GBTC addresses and balances based on public info and blockchain forensics. pic.twitter.com/WFtOyoCEay

— 🏴∴Ergo∴🏴 (@ErgoBTC) November 20, 2022

Per the analysis, Ergo reveals that they have identified 432 addresses holding about 317,705 BTC, likely part of the GBTC reserves. It is worth noting that the team started its analysis around July 2019, when Grayscale moved custody of its assets to Coinbase from Xapo.

Grayscale declined to release a proof-of-reserves in response to community demands citing security concerns inspiring the effort from Ergo.

In the wake of the FTX collapse, the crypto community speculates that Digital Currency Group, the parent company of Genesis Trading, Grayscale, and CoinDesk, is the next domino to fall. 

It comes after Genesis Trading, arguably crypto’s biggest lender announced its decision to halt operations despite receiving a capital infusion from DCG to cater for the loss of $175 million in assets in the FTX collapse. However, a Wall Street Journal report cites illiquid assets in its balance sheet as the reason for halting withdrawals. The report also indicates it sought $1 billion in capital to resume operations.

Genesis is seen as the go-to for institutions and whales looking to lend crypto to earn yield. Consequently, several industry pundits have asserted that a Genesis collapse could have a bigger ripple effect than FTX. Already, Gemini has been forced to halt its earn program.

In light of recent information, users speculate DCG itself may be insolvent. According to North Rock Digital founder Hal Press, the size of funds required indicates that the liability lies with DCG. Consequently, users have also called to question the health of the Grayscale trust. 

Notably, Coinbase released a letter today to assure users of the safety of Grayscale assets in its cold storage wallets. 

“Coinbase Custody Trust Company, LLC  (Coinbase Custody) writes to you to reaffirm that the assets underlying all of Grayscale’s digital asset products held at Coinbase Custody, as listed in the table below, are secure,” 

Furthermore, it asserts that each user’s assets are kept separately to avoid mixing user assets. 

“Coinbase Custody always ensures that each client’s digital assets are segregated on-chain, in deep cold-storage,  from both the property of  Coinbase  Custody and the assets of other  Coinbase  Custody clients,” Coinbase writes. “This means that the digital assets underlying each Grayscale product will never be commingled with or confused for the digital assets of any other client. This also means that the  digital assets of each Grayscale product can be confirmed on-chain.”

Despite these assurances, the community continues to frown at the refusal of the exchange to reveal the wallet addresses. 

Messari founder Ryan Selkis in a tweet today, asserted that this week is likely to be a turbulent one for DCG and its subsidiaries.

GBTC continues to trade at a 43% discount to the actual Bitcoin price indicating investor bearishness.

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