Pressure continues to mount on the Digital Currency Group (DCG) and Grayscale. The Winklevoss twins gave DCG an ultimatum on January 8 to return $900 million in Gemini Earn customer funds, while users filed a class action lawsuit against both companies.
In addition, Valkyrie Investments and Fir Tree were recently involved in a “Shakespearean drama” in what is believed to be a tactical decision, NewsBTC reported yesterday. So pressure is mounting on DCG CEO Barry Silbert, who is expected to rule on a three-judge panel’s appeal to the U.S. Securities and Exchange Commission on February 3 for refusing to list GBTC. Bitcoin spot ETF.
These Altcoins are the largest holdings of DCG and Grey
As many know, Grayscale holds a large amount of Bitcoin as part of its GBTC, i.e. more than 630,000 BTC, much to the concern of investors. However, as a Twitter user, Karl showsnot only BTC investors, but also altcoin investors should be rooting for Silbert’s companies to survive.
While the more than 630,000 BTC is “only” 3.28% of all bitcoins in circulation, there are two company-owned altcoins that account for an even higher percentage of the total market cap. Among its other holdings, Grayscale owns a staggering 8.53% of all Ethereum Classic (ETC), which equates to around $189 million. Second on the list is Horizen (ZEN). The share of the total market capitalization is 4.64%, about 5.7 million dollars.
But Grayscale also has a pretty high share of ZCash (ZEC) and Ethereum (ETH) with 2.53% and 2.52% respectively. They are followed by Litecoin (2.11%), Bitcoin Cash (1.6%) and MANA (1%).
If Grayscale is forced to sell Genesis’ balance to cover its creditors, these tokens will be the most affected. pic.twitter.com/13Lo0yYPl9
— Karl (@karl_0x) January 2, 2023
The main concern for the above cryptocurrency investors could be that the Micheal Sonnenshein-led company will liquidate some altcoin trusts to keep 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 large shares of the overall market, it would be almost impossible to rule out the possibility that already underperforming altcoins will suffer even higher, large losses due to the Grayscale dump.
Ethereum Classic is currently 90.85% off its all-time high of $176.16, while Horizen is 94.44% off its all-time high of $168.15. The biggest loss comes from Zcash, which is down 99.36% from its all-time high of $5,941.80.
Obstacles for the gray color to undo their confidence
Whether all or only some of the trusts will be liquidated can only be speculated at this time. CEO Michael Sonnenshein has emphasized several times in recent weeks that Grayscale has no intention of liquidating the GBTC fund.
Nevertheless, it triggered an option two weeks ago to return 20% of GBTC’s capital to shareholders if it fails to convert the product into an exchange-traded fund.
However, there are high legal hurdles. It is important to remember that Grayscale is regulated by the SEC. Revocation of trusts requires an application to the SEC, and the process is very long and difficult, on the other hand, it is not impossible, as evidenced by the cancellation of the XRP trust as a result of the SEC’s lawsuit against Ripple.
Grayscale has a low-risk, high-return project. However, current developments are putting enormous pressure on DCG and therefore on Grayscale. Because of the relationship between the two companies through loans, the collapse of the parent company could also drag down the cash cow with Grayscale.
However, it should be emphasized that a dip does not necessarily mean that all coins are tossed at once. If there is a Reg M solution, probably not all Grayscale investors want to sell. Therefore, it remains important for investors to follow the development of the DCG/Grayscale drama.
At press time, the price of Ethereum was still at $1,216 with the momentum going down.
Featured image from Twitter, chart from TradingView.com