DCG's Grayscale refuses to share proof of reserves, citing “security concerns”, as Grayscale Bitcoin Trust reaches new lows and DCG's Genesis halts withdrawals
November 2022 will be remembered as one of the worst months in the crypto industry's history. Matt Turner / Bloomberg : Cathie Wood Goes On Coinbase Buying Spree as Wall Street Sours Liam ‘Akiba’ Wright / CryptoSlate : Grayscale holds 635K BTC as Coinbase Custody reveals holdings Tweets: @grayscale : 6) Coinbase frequently performs on-chain validation. Due to security concerns, we do not make such on-chain wallet information and confirmation information publicly available through a cryptographic Proof-of-Reserve, or other advanced cryptographic accounting procedure. @grayscale : [NEW TODAY] Due to recent events, investors are understandably inquiring deeper into their crypto investments. In this thread we've compiled additional information about the safety and security of the assets held by our digital asset products. https://grayscale.com/... 🧵 @twobitidiot : Fiction: + Grayscale trust assets aren't accounted for + DC is working to ban crypto + Contagion is just getting started Fact: + Most crypto lenders have been wiped out + SEC won't approve a spot ETF under Gensler (sorry GBTC holders) + Scrutiny will turn to Binance & Tether @grayscale : 4) All digital assets that underlie Grayscale's digital asset products are stored under the custody of Coinbase Custody Trust Company, LLC. Read more from @Coinbase's CFO Alesia Haas, and CEO of Coinbase Custody Aaron Schnarch: https://twitter.com/... @twobitidiot : Guys - I'll say this one more time. All Grayscale trust assets are at Coinbase and untouchable. If they were touched, it would be fraud by Coinbase, Grayscale, and negligence by both companies auditors. The assets are there. It's the rest of the trust structure that is broken. Sean Tuffy / @smtuffy : If Grayscale turns out to be lying about its reserves, it's over for regulated crypto @freemrktcptlst : Grayscale is the final boss ... https://twitter.com/... @hodlkryptonite : 1/n - Prediction - DCG will choose to unwind GBTC and send in 600k of BTC into the market for sale Tommy Shaughnessy / @shaughnessy119 : It's MIND blowing how FTX and DCG fumbled unmatchable leads - Grayscale $100m's in AUM fees and investors literally locked in. Trading down due to Genesis attachment - Alameda having direct access to FTX trading data and a no liquidation account + lost $Bs Issue = greedy risk @hodlkryptonite : Given that DCG actually owns ~67m shares of GBTC, unwinding GBTC actually raises them 1B. This actually tilts the calculus towards unwinding GBTC vs trying to find a suitor for selling Grayscale to https://twitter.com/... https://twitter.com/... Simon Dixon / @simondixontwitt : THIS MAY NOT AGE WELL. Im not worried about @Grayscale even if @GenesisTrading or @DCGco files. If #Bitcoin in @Grayscale was leveraged then it's a controversy as big as MF Global (Which did happen) - @DCGco will be an easy Chapter 11 as private equity rich. NOT INVESTMENT ADVICE https://twitter.com/... @santiagoaufund : Wasn't part of the blockchain revolution going to be the ability to provide transparency and verification in a safe, secure and immutable format? https://www.cnbc.com/... @hodlkryptonite : 11/n - However, given that they own close to 67m~ of GBTC - By dissolving GBTC - they can get ~1B at current prices. Of course the market would nuke down to probably 8k, with an avg sale price of ~12k? That would get them 750m. More than a 500m bid on Grayscale biz https://twitter.com/... Holger Zschaepitz / @schuldensuehner : If you are in trouble, double! Cathie Wood has been scooping up shares of crypto exchange Coinbase in wake of FTX's collapse. Recent shopping spree has boosted Ark's holdings to 4.7% of Coinbase's outstanding shares. Ark also bought Grayscale Bitcoin Trust https://www.bloomberg.com/... https://twitter.com/... @bitfinexed : I'm stealing this. It's cute that people calling bullshit on Grayscale refusing to show the Bitcoin reserves, but also claiming everything is cool with Tether refusing to show reserves or perform audits for five years plus now. https://twitter.com/... https://twitter.com/... @hodlkryptonite : 14/n - By selling Grayscale, he will give away the crown jewel to someone else for LESS money. By unravelling GBTC, he can get the money that he needs and restart this. The incentives are clear @peckshieldalert : #PeckShieldAlert Shares in Grayscale's Bitcoin Trust Trade at 45.08% Discount to Fund's NAV as of November 18, 2022 https://twitter.com/... Nate Geraci / @nategeraci : Some questions swirling around GBTC & the underlying bitcoin... Here's what Grayscale says: “No other entity, including DCG, Genesis, nor any other Grayscale affiliate, has any control over the digital assets underlying the Grayscale products.” https://grayscale.com/... https://twitter.com/...
Context & Ripple Effects
Grayscale was already contesting the SEC’s rejection of its bid to convert GBTC into an ETF through a lawsuit over the denied conversion bid. The current strain joins a falling GBTC share price, a Genesis withdrawal halt and Grayscale’s decision to rely on disclosed Coinbase Custody arrangements rather than public cryptographic verification.
The later record shows Grayscale moving toward public-market disclosure through confidential IPO paperwork, making this episode a clear early test of how much transparency investors expect from a crypto asset manager and its custody stack.
First-order effects
- GBTC holders receive no public cryptographic confirmation of the trust’s reported 635,000 BTC, while Grayscale directs assurance toward Coinbase Custody’s role as custodian.
- Genesis customers are immediately unable to withdraw funds, and the simultaneous events place DCG’s Grayscale and Genesis operations under the same confidence shock.
Second-order effects
- GBTC’s new lows and the Genesis freeze make Grayscale’s disclosure policy a central factor for investors evaluating DCG-linked products, rather than a narrow custody-operations question.
- Coinbase Custody becomes the key disclosed verification point for Grayscale’s assets, concentrating scrutiny on custodian assurances in the absence of a public proof-of-reserves process.
Third-order effects
- If crypto asset managers continue to seek broader capital-market access, the divide between custodian statements and independently verifiable reserve disclosures will become a governance and product-positioning issue, as Grayscale’s later IPO filing illustrates.
- The episode points toward a settlement-trust model in which the credibility of investment vehicles depends not only on asset custody but also on how transparently managers expose that custody to investors.
The trend: Crypto investment products are being pushed to turn custody arrangements into verifiable investor disclosures as market stress tests confidence in affiliated firms.