Renowned crypto firm Arcane Research has issued a warning Bitcoin (BTC) and published Ethereum (ETH)-Investors in light of the escalating events surrounding Digital Currency Group (DCG), Genesis and Grayscale. In an article by analyst Vetle Lunde, the firm warns:
Investors should be aware of the ongoing financial distress surrounding Digital Currency Group (DCG) as the outcome could have a severe impact on crypto markets.
In justifying the warning, Arcane Research states that in the event of bankruptcy, DCG could be forced to liquidate its assets. “This could force DCG to sell its sizeable positions in GBTC and undisclosed positions in ETHE and other Grayscale trusts,” Lunde said.
Additionally, the analyst argues that a “natural, less liquidity-constrained” solution could be a Reg M solution that allows holders of Grayscale Bitcoin Trust (GBTC), Grayscale Ethereum Trust (ETH) and the other trusts to redeem shares at net asset value.
This would dissolve the record-breaking NAV – the value the fund is trading at below the bitcoin spot price. GBTC was trading at -45.35% yesterday while ETH was trading at -55.83% NAV. The dissolution of the trust via Reg M would have a noticeable impact on the crypto markets as GBTC accounts for about 3.3% of the circulating BTC supply and 2.5% of the ETH supply.
Arcane describes the threat of the market in the massive arbitrage-Options:
A Reg M would trigger a massive arbitrage strategy of selling crypto spot versus buying shares in the Grayscale Trust. If this scenario proves true, the crypto markets could face further downside.
In the longer term, however, Arcane Research describes this scenario as a positive event as the crypto market is “finally relieved of the enormous strain” caused by the “Grayscale Widowmaker Trade”. According to Lunde, this could even be the potential last market bottom.
Bitcoin facing final internal shock?
As NewsBTC BTC reported, the pressure on DCG is increasing day by day. Earlier this week, Gemini founder Cameron Winklevoss released an open letter alleging that Barry Silbert’s DCG was maliciously using delaying tactics. Winklevoss gave Silbert until January 8 to repay the $900 million in Gemini Earn client funds.
If Silbert doesn’t comply, it could culminate in the coordination of a voluntary DCG Chapter 11 filing, according to Arcane Research. Also taking the stage were Valkyrie Investments and $3.5 billion wealth manager Fir Tree.
Valkyrie made an offer to become GBTC’s new sponsor and manager, while also announcing the launch of an opportunistic fund to take advantage of GBTC rebates. Fir Tree has filed a lawsuit, believed to be a tactical move to hurt DCG’s valuation and reduce the likelihood of a third-party investment.
At press time, bitcoin price was $16,817 and it still lacked volatility.
BTC/USD 1-day chart Featured image from iStock, chart from TradingView.com
Source: Crypto News Deutsch