DCG Insolvency Fears Again Sparks Grayscale Liquidation Speculation – Here’s What We Know

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The fresh concerns have been triggered by Cameron Winklevoss’ recent open letter to DCG Chief Barry Silbert.

Digital Currency Group (DCG), the parent company of asset management firm Grayscale and crypto lender Genesis, is the latest to trigger insolvency concerns amongst investors within the crypto space. Amid these concerns, there is a growing dread of a potential liquidation of Grayscale’s assets.

Cameron Winklevoss, the co-founder of American crypto exchange and custody platform Gemini, has given DCG Chief Barry Silbert until January 8 to reach a resolution that will bring back the $900M Genesis owes to Gemini Earn customers. Winklevoss believes Silbert had gambled away the funds in “kamikaze” Grayscale NAV trades.

Winklevoss had accused Silbert of exhibiting unconscionable behavior regarding Genesis’ debt of $900M owed to Gemini Earn customers.

Earn Update: An Open Letter to @BarrySilbert pic.twitter.com/kouAviTho4

— Cameron Winklevoss (@cameron) January 2, 2023

Gemini lent out $900M of funds gotten from customers of its Earn program to Genesis. This is due to the partnership between both firms. According to Winklevoss, Genesis, in turn, lent the funds to DCG, its parent company, along with assets from other creditors, bringing the total loan to $1.675B. DCG allegedly put the $1.675B loan in Grayscale investments, which have been negatively affected by the market-wide turmoils.

Recall that The Crypto Basic previously noted investors were concerned about the Grayscale Bitcoin Trust (GBTC) as its premium rate fell to a record 48.62% discount. The Grayscale Ethereum Trust (ETHE) was also recently reported trading at a record 60% discount.

Notably, Genesis paused withdrawals for its customers last November, citing a liquidity crunch triggered by the FTX Collapse. Having loaned out its Earn funds to Genesis, Gemini also had to pause withdrawals on its Earn program. 

Consequently, the crypto community fears Grayscale might need to liquidate its Trusts to meet the liquidity demand and pay off DCG and Genesis creditors, including Gemini. A list of tokens that such a liquidation might impact include Ethereum Classic (ETC), Bitcoin (BTC), Ethereum (ETH), and Litecoin (LTC). This is due to Grayscale’s massive holdings of these assets.

Grayscale holds $10.5B worth of BTC, representing 3.28% of the asset’s supply. The asset manager also holds 8.53% of ETC’s supply, and 2.52% of ETH’s supply, according to a sheet shared by an anonymous influencer. Liquidating these assets would significantly impact their values.

As noted in an earlier report, if Grayscale dissolves its Trusts, the affected shareholders would either receive a share of their holdings in the USD or the underlying digital asset. The former, of course, indicates a liquidation. Notably, it is at the sponsor’s discretion to decide which route to take.

However, DCG might not resort to liquidating Grayscale’s Trusts due to the cumbersome nature of the exercise and its eventual effects on the firm.

Nonetheless, users can not completely rule out the possibility of liquidation, as Grayscale did so with its XRP holdings in the wake of the US Securities and Exchange case against Ripple.

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