The pressure on the Digital Currency Group (DCG) and Grayscale continues to mount. The Winklevoss twins have given DCG an ultimatum until Jan. 8 to return the $900 million in Gemini Earn customer funds, while the users themselves have filed a class action lawsuit against both companies.
Additionally, Valkyrie Investments and Fir Tree have become involved in the “Shakespearean drama” in what is believed to be a tactical decision, NewsBTC reported yesterday. So the pressure is building by the day on DCG CEO Barry Silbert as he presumably hopes for February 3 when a three-judge panel will rule on the lawsuit against the Securities and Exchange Commission for refusing to do so , to convert GBTC to a Bitcoin-Spot ETF.
These altcoins are the largest holdings of DCG and Grayscale
As many know, Grayscale owns a huge amount of Bitcoin as part of its GBTC, namely more than 630,000 BTC, which causes great concerns among investors. However, as a Twitter user, Karl shows that not only BTC investors but also altcoin investors should stand up for the survival of Silbert’s company.
While the 630,000+ BTC accounts for “only” 3.28% of all bitcoin in circulation, there are two altcoins owned by the company that account for an even higher percentage of the total market capitalization turn off. Within its other trusts, Grayscale holds a staggering 8.53% of each Ethereum Classic (ETC), the equivalent of around 189 million dollars. Second on the list is Horizen (ZEN). The share of the total market capital is 4.64%, around 5.7 million US dollars.
If Grayscale is forced to sell its balance sheet to cover Genesis’ creditors, these tokens would be hit the hardest pic.twitter.com/13Lo0yYPl9
– Karl (@karl_0x) January 2, 2023
The main concern for cryptocurrency investors above may be that the Micheal Sonnenshein-led company will liquidate some of its altcoin trusts to save its flagship product GBTC and possibly Grayscale Ethereum Trust (ETHE) and the entire Digital Currency Group. Silbert could use the funds to service creditors.
Given the massive shares of the overall market, it would be almost impossible to rule out the possibility of the already underperforming altcoins suffering even larger, severe losses from a grayscale dump.
The Ethereum Classic price is currently 90.85% below its all-time high from $176.16, while Horizen is trading 94.44% below its all-time high of $168.15. The biggest loss comes from Zcash, which is 99.36% down from the all-time high of $5,941.80.
Obstacles for Greyscale to resolve their trusts
It can currently only be speculated whether all or only some of the trusts will be dissolved. CEO Michael Sonnenshein has repeatedly emphasized in recent weeks that Grayscale has no intention of liquidating the GBTC fund.
Still, he brought up the option to return up to 20% of GBTC’s capital to shareholders if he doesn’t convert the product into an exchange-traded fund two weeks ago.
Nevertheless, there are high legal hurdles. It’s important to remember that Greyscale is regulated by the SEC. Dissolving trusts requires filing with the SEC and the process is very lengthy and difficult, if not impossible, like dissolving the XRP-Trusts as a result of SEC lawsuit shows Ripple.
Grayscale has a low risk, high return project. However, the current developments are putting DCG and thus also Grayscale under massive pressure. Because of the credit ties between the two companies, a demise of the parent company could also take Grayscale’s cash cow into the abyss.
However, it is important to emphasize that a sink does not necessarily mean a dump of all coins at once. If there’s a Reg M solution, probably not all Grayscale investors would want to sell. As such, it remains important for investors to follow the unfolding of the DCG/Grayscale drama.
At press time, the Ethereum price was trading at $1,216 and it was still lagging behind momentum.
ETH price 1-day chart Featured image from Twitter, chart from TradingView.com
Source: Crypto News Deutsch