Firm Completes Proof of Reserves

While there are still no details on the possible rescue of Genesis Trading, there is at least some positive news regarding Grayscale Bitcoin Trust (GBTC).

Ryan Selkis, co-founder of Messari reported It appeared Tuesday that Genesis has “days, not weeks” to reach an agreement with creditors to avoid Chapter 11. A building block for the cryptocurrency community, the question of whether Grayscale actually owns Bitcoin 1:1 has now been investigated. by the analyst company OXT Research.

For its part, Grayscale, the largest legal holder of Bitcoin with approximately 633,000 BTC, has refused to provide proof of reserve in recent days. Grayscale said in a statement Via Twitter, Coinbase said it could not make the cryptographic proof of deposit from Custody public due to security concerns.

“We know that the former point in particular will be disappointing to some, but the panic caused by others is not a good enough reason to bypass the sophisticated security measures that have kept our investors’ assets safe for years,” Grayscale said.

Shortly after, Coinbase Custody also published a letter to Grayscale investors. The company reassured investors and confirmed that the funds were kept in cold storage. However, due to strict regulation, Coinbase Custody is prohibited by law from lending customer funds, the company said.

OXT Study Provides Evidence of Reserves for Grayling

To begin a community-led effort to provide transparency for GBTC holdings, OXT Research has taken steps in recent days to identify likely GBTC addresses and balances based on public information and blockchain forensics.

They published it on Sunday The first part Using public data and on-chain forensics to identify 432 addresses with 317,705 BTC, their analysis as likely GBTC storage activity. However, this was only about 50% of the current holdings reported by GBTC.

“Additional work is needed to identify the remaining addresses. […] But identifying the remaining ~315k BTC will take a long time,” OXT Research said.

In the second part In its analysis published a few hours ago, the research firm used additional chain forensics to confirm the estimated balance of 633,000 BTC held in Coinbase Custody.

The starting point for the first part of the analysis was the transfer of 240,000 BTC from the then GBTC custodian XAPO to Coinbase Custody after July 2019, but this approach was exhausted. That’s why OXT Research expanded Grayscale and Coinbase Custody’s interactions with known counterparties in the second part of its investigation.

As a result, the firm concludes that Grayscale’s own report is reliable:

Obviously, no heuristic or set of heuristics is perfect, and this analysis certainly contains false positives and negatives. But our result is almost identical to the reported holdings of G(BTC).

Part 2 Estimate: 634,639 BTC
G(BTC) Report: 633,394 BTC

However, there is a (small) catch. Despite owning as much BTC as they have stored, Grayscale has chosen to forgo transparency. “Why?”

Initially, the research firm assumed that “Coinbase Custody had some sort of non-disclosure agreement.” But this contradicts the official letter.

Therefore, OXT Research concludes that one of the only real reasons Grayscale doesn’t want to disclose their addresses is because they want to avoid revealing information about their most used counterparties.

According to OXT Research, it could be DCG and Genesis Trading. The analysis shows that Grayscale has two preferred groups of wallets as counterparties. Both of these clusters have “OTC” wallet profiles that favor low transaction and address counts, high BTC volumes, and EST business hours:

They are also closely tied with 1057 direct transactions and 336k BTC in direct flows between the two clusters. A massive connection indicating that these may be the same entity.

At press time, BTC was trading at $16,576, struggling to overcome major resistance at $16,600.

Bitcoin price on 15 minute chart. Source: TradingView

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