DCG Debt 2 Billion, Grayscale BTC What Will Happen?  UPDATE Situation

DCG Debt 2 Billion, Grayscale BTC What Will Happen? UPDATE Situation

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2023-02-16 20:55:46

Market situation

Last Friday’s trading session, US stocks closed up slightly in Dow Jones, while the other two indexes fell. Although it is a shopping time of the year, inflation and economic situation make investors not very optimistic. Gold rose slightly to $1,755. And oil fell to 76 USD/barrel.

On the other hand, crypto has not had much change in price. BTC last day fluctuated around 16,500 USD.

Black Friday – Black Friday, usually only when retailers sell large quantities of goods. In American accounting, when a loss is written in red ink, when it is a profit, it is written in black ink. So this can be considered as their profitable time of the year.

Black Friday weekend will take on more importance this year after retailers like Target and Macy’s reported a recent lull in sales. A record number of more than 166.3 million people are expected to shop over the long weekend, according to the National Retail Federation.

Mobile shopping also hit a record high this year. The record spending comes after a strong Thanksgiving shopping day in which consumers earned an all-time high $5.29 billion online, up 2.9% from the same period last year. Typically, shoppers spend about $2 to $3 billion online every day, according to Adobe.

Looking at stocks, however, the Nasdaq has fallen sharply from its all-time high a year ago. This drop due to layoffs, inflation and rising interest rates has hit the tech industry. Companies are reducing spending and responding to a weakening economy after seeing their stock prices rise.

In total, investors lost about $7.4 trillion, based on Nasdaq’s 12-month decline. Microsoft has lost about $700 billion in market capitalization. Meta’s market capitalization is down more than 70% from its peak, wiping out more than $600 billion in value this year. Looking back at the crypto market, the capitalization of crypto is still very small compared to stocks.

Money movement and BTC dominance

Nowadays, it is very common to use money via bank card (debit or credit card) or wire transfer. Users look very simple from the outside and see quickly when using in the country they live in. However, the operation behind it is very complicated. The amount shown in the bank account is only similar to the debit note that the bank gives the depositor. The bank will use a part of that money to store, and most of it will lend. Look at the diagram below on how the bank works and moves so we can see how complicated it is. Especially for cross-border money transfers, the larger the amount, the higher the fee will be and the longer the waiting time when the distance is long.

As for BTC and crypto, when paying with BTC in particular as well as crypto in general, the money actually moves straight from wallet to wallet without any intermediaries. This is what makes BTC and crypto valuable.

The company that runs America’s largest 401(k) pension fund platform, Fidelity decided to stick with the plan to offer bitcoin investments in retirement plans. After the collapse of FTX as well as a series of other companies before it, Fidelity faced a lot of pressure from politicians. Democratic Senators Elizabeth Warren of Massachusetts, Dick Durbin of Illinois, and Tina Smith of Minnesota wrote in a letter to the company’s chief executive officer Abigail Johnson and called for the company to stop offering BTC investment services to the public. pension fund.

However, the FTX crash, despite having an effect on the price, is not relevant or representative of the BTC or crypto markets. Fidelity said that while FTX is a “serious” example of “poor and misbehaving” in the crypto space, it is not an industry failure but “human nature.”

Fidelity has been active for more than 75 years in the financial markets. They are committed to prioritizing operational excellence and customer protection above all of their business. It is understood that some of Fidelity’s corporate clients have used the product and are offering Bitcoin as a long-term investment option in their retirement plans. As an investment option alongside other options like investing in technology stocks, etc. Although the stocks of tech companies like Meta, Apple can drop up to 80% in a year but in the long term it is is still an investment channel that helps many Americans have good retirement savings.

Not only that, university Harvard also advises central banks to buy BTC. The reason they gave was the highlights of BTC that Thuan also shared many times before. As BTC is a decentralized network, no one can stop or control it. BTC is easy to store and move in bulk.

The Harvard article argues that it makes sense for many central banks to hold small amounts of Bitcoin under normal circumstances, and more Bitcoins if they face sanctions risk. At the same time, the evidence shows that countries, especially small countries that cannot store gold on their own, should consider accumulating BTC. An asset that is easy to self-storage, maintain and move flexibly.

DCG owes 2 billion USD, what will Grayscale BTC be?

Current situation of DCG

The company Digital Currency Group (or DCG) is a very large company, owning subsidiaries such as cryptocurrency mining company Foundry, Grayscale, cryptocurrency exchange Luno, and news agency Coindesk. Recently, this company has updated the latest information that it has a financial debt of $ 2 billion.

A series of events that led to this publicity was the collapse of Three Arrow Capital and FTX that caused Genesis to stop allowing customers to withdraw funds from its platform. Gemini’s Earn product is directly affected and also stopped allowing customers to withdraw money from this product.

After that, the parent company DCG had to go to raise money to support 1 billion USD for Genesis. However, investors question that the company’s financial hole is only 1 billion USD or more. So, yesterday DCG was publish a letter for investors to clarify their financial situation. At the same time, it publishes on its website the inter-company loans between it and its subsidiary Genesis Global Capital.

DCG revealed that it currently has about $2 billion in debt, most of it in inter-company loans. Of which, DCG has borrowed USD 575 million from Genesis and the loan is due in 2023. In addition, DCG is carrying a debt of USD 1.1 billion to Genesis due to the collapse of Three Arrow Capital due in 2032. The company is also borrowing a $350 million line of credit from a group led by Eldridge.

To solve the problem, DCG is looking to borrow to fill the existing gap. The CEO of this company also announced that their income is estimated at 800 million USD. However, there are many doubts about this number. According to the latest statistics from Bloomberg, Grayscale’s estimated income this year is only about 317 million USD. Meanwhile, this is already the company that brings the biggest income for DCG, so the other companies’ income will be much lower. Therefore, investors believe that DCG’s income this year will be much lower than the figure of $800 million.

So what will happen?

Investors ask the question, if DCG fails to arrange a $2 billion loan, what will happen to Grayscale and how will it affect the crypto market?

DCG is a large company that owns many companies and invests in many different projects. So, the first option they choose, if they can’t borrow $ 2 billion, they may sell the assets they have from investments in projects, subsidiaries, sell shares and even sell their assets. whole big company. The company Grayscale is holding a very large amount, about 3% of all BTC in circulation in the market. Therefore, investors are worried that Grayscale will have to sell BTC and greatly affect the price in the market.

Grayscale’s income comes from investors’ BTC storage and management fees. This is also the company that brings DCG’s main income, so it will be DCG’s last choice if it has to sell its subsidiaries. DCG itself also owns shares of GBTC which is also holding shares of Grayscale.

When investors deposit BTC or their money into Grayscale, they will receive an amount of GBTC shares corresponding to the amount of BTC purchased if the investor makes a deposit. Since GBTC is a BTC trust fund, it is in the nature of investors to buy Bitcoin indirectly and avoid the hassle of buying BTC through a crypto exchange. This means that investors are relying on Grayscale to buy and hold Bitcoin for them as a third party.

Grayscale will need to store enough customer BTC, and they are storing it through the company Coinbase Custody. Regarding shares, after six months, investors can use GBTC holding to buy and sell on stock exchanges. This share price will also fluctuate higher or lower than BTC due to demand in the market.

With the operation of the Grayscale fund, DCG still has many assets, but these assets are difficult to legally withdraw. Currently, the shares of GBTC are losing 40%, so DCG will not easily use the last option, Grayscale. DCG is in a very difficult position to make a decision at the moment. There is also a question about whether Coinbase Custody really stores enough BTC due to the trust shaken by the events of FTX.

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