• Arcane Research has issued a warning to Bitcoin and Ethereum investors in light of the current financial distress surrounding Digital Currency Group (DCG), Genesis, and Grayscale.
• If DCG goes bankrupt, it could be forced to liquidate its assets which could include its sizable positions in GBTC and unknown positions in ETHE and other Grayscale trusts.
• A Reg M solution which allows investors to redeem shares at net asset value could resolve the near-record NAV and trigger massive arbitrage opportunities which could have a significant impact on crypto markets.
Crypto investors have been put on alert following a warning from renowned crypto firm Arcane Research. In an article by analyst Vetle Lunde, the firm stated that investors should pay attention to the ongoing financial distress related to Digital Currency Group (DCG), Genesis, and Grayscale as the outcome could severely impact crypto markets.
DCG is a major player in the crypto space, with a sizable position in GBTC and unknown positions in ETHE and other Grayscale trusts. If the company goes bankrupt, it could be forced to liquidate its assets which would have an adverse effect on crypto markets. Arcane Research warned 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 resolve the near-record NAV – the value by which the fund trades below the Bitcoin spot price.
Currently, GBTC is trading at -45.35% while ETH is at a NAV of -55.83%. The dissolution of the trust via Reg M would trigger tangible impacts on crypto markets, as GBTC comprises about 3.3% of the circulating BTC supply and 2.5% of the ETH supply. Arcane Research also noted that a Reg M would cause a massive arbitrage strategy of selling crypto spot versus buying Grayscale Trust shares which could have significant implications for crypto markets.
Overall, the events surrounding DCG, Genesis, and Grayscale should serve as a warning to crypto investors. If DCG goes bankrupt and is forced to liquidate its assets, the consequences for crypto markets could be severe. A Reg M solution could resolve the near-record NAV and trigger massive arbitrage opportunities, but this is far from certain. Investors should remain vigilant and watch for any further developments in the ongoing financial distress related to the companies in question.