According to a UBS analysis, Grayscale’s Bitcoin Trust (GBTC) size might be problematic for the market as a whole.
Over 633,000 bitcoins, or 3.3% of all coins ever mined, are held by Grayscale’s Bitcoin Trust, a passive investor in the cryptocurrency. At today’s prices, this amount is equivalent to almost $11 billion. Since bitcoin still makes up more than 45% of the space outside of stablecoins, the sheer size would “spell trouble for the entire market,” according to UBS.
The bank’s investigation comes as concerns about the parent company of Grayscale, Digital Currency Group, are roiling. Concerns first surfaced after the collapse of the exchange, when DCG’s Genesis Global Capital disclosed that it had a $175 million exposure to FTX. Genesis reportedly sought to raise $1 billion, failing which it might have sought bankruptcy protection. Additionally, there have been rumors that DCG is looking to sell the cryptocurrency news website CoinDesk. According to the New York Times, DCG hired Moelis & Company to investigate its options.
UBS suggested that one potential choice for DCG was to use its GBTC investment.
According to data from Bloomberg, DCG owns almost 10% of the shares of GBTC. According to a note by UBS strategist Ivan Kachkovski, it might decide to sell its holdings to raise money.
“This stake is presently worth $600m, 12 times greater than the three-month average of the trust’s daily trading volume,” he said.
UBS adds that SEC filing language does not imply that a shareholder vote might compel the trust to dissolve. “If not, Grayscale need merely maintain its liquidity and financial stability to continue managing the fund.”
The investment bank’s last argument against liquidation is that, while profitable, realizing the discount—by acquiring the underlying bitcoin—would, at best, net around $440 million.
The trust’s management fees would provide recurrent annual revenue for a little over two years at that point. Additionally, it would presume that all bitcoin were sold at the current rate of about $17,000, which Kachkovski believes is unlikely.
Although these outcomes should worry investors, Kachkovski argued that there isn’t any immediate reason to panic.
