Arcane Research, a well-respected crypto firm, has issued a warning for investors in Bitcoin (BTC), Ethereum (ETH), and other cryptocurrency platforms due to the escalating events surrounding Digital Currency Groups (DCG), Genesis and Grayscale. An article by Arcane Research article The firm is advising by Vetle Lunde (an analyst):
Investors should be alert to the ongoing financial crisis surrounding Digital Currency Group (DCG), as it could adversely impact crypto markets.
Arcane Research states in the reason for the warning that DCG may have to liquidate its assets if it becomes bankrupt. “This could force DCG into selling its sizable positions in GBTC and unknown positions in ETHE and other Grayscale trusts,” Lunde said.
Further, the analyst argues 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. Yesterday, GBTC traded at -45.35% while ETH had a NAV at -55.83%. The trust would be dismantled via Reg M. GBTC accounts for 3.3% of the circulating BTC supply, and 2.5% of the ETH.
Arcane describes the threat that the market faces from the huge arbitrage opportunities.
A Reg M could lead to a huge arbitrage strategy that would see crypto spot being sold in favor of Grayscale Trust shares. This scenario could lead to further volatility in crypto markets.
In the long run, however, Arcane Research calls this scenario a positive event, as the crypto market is “finally relieved of the huge burden” caused by the “Grayscale widowmaker trade.” According to Lunde, this could even be the potential final market bottom event.
Bitcoin facing the final intra-insic shock?
NewsBTC BTC reported that DCG is under increasing pressure. Earlier this week, Gemini founder Cameron Winklevoss published an open letter claiming that Barry Silbert’s DCG was using stalling tactics in bad faith. Silvert was given a January 8 deadline by Winklevoss to return $900 million of Gemini Earn client funds.
Arcane Research says that Silbert could be required to comply with the voluntary DCG Chapter 11 filing. Valkyrie Investments, and Fir Tree, a $3.5 billion asset manager, also appeared on the stage.
Valkyrie offered to be the new manager and sponsor of GBTC, while announcing that an opportunistic fund would be launched to take advantage the GBTC discount. Fir Tree has filed a lawsuit, presumably in a tactical move to hurt DCG’s valuation and reduce the likelihood of investment by third parties.
The Bitcoin price was $16,817 at press time. It is still not volatile.
Featured image taken from iStock. Chart taken from TradingView.com